What Happened to Sprout Social’s Stock Price?
- Shares of social media management company Sprout Social (NASDAQ:SPT) popped after the company reported strong first-quarter numbers, with SPT stock rising about 5%.
- Over the past year, SPT stock has been a big winner, climbing 270%. But shares are about 25% off their mid-February highs thanks to a meltdown in technology stocks amid Covid-19 risks abating and the physical economy reopening.
- Investors are hopeful this strong earnings report could turn the tide for Sprout Social stock.
SPT Stock Earnings Breakdown
- Considering chatter from other “pandemic winners” about demand slowing in early 2021, there was some fear that Sprout Social’s first-quarter numbers and/or forward guide would imply a slowing growth trajectory.
- They didn’t: Customers rose 17% year-over-year in Q1, with net adds clocking in north of 1,400. That’s a very, very high number for this company.
- What’s more, ARPU rose 17% and revenues grew by 34%.
- Next quarter, revenues are expected to rise 37%. For the full-year, Sprout guided revenue growth at 32.5%.
- Meanwhile, margins continue to improve. Gross margins expanded nearly 200 basis points in the quarter, and its operating loss narrowed by about $5 million. These improvements are expected to persist for at least the balance of the year.
- The company appears to be doing everything right at this moment, and investors are responding enthusiastically by bidding up SPT stock.
Does It Matter?
- From a pure fundamental business perspective, Sprout Social represents one of the most attractive investment opportunities in the market today.
- You have an early-stage company, with a hugely value-additive technology, in a very important and rapidly growing market, with a highly scalable business model.
- In short, everyone is on social media these days. If a brand wants to have strong brand equity, create awareness and connect with consumers, it needs to be great at social media. But social media management is tough, because there’s so many platforms, so many posts, and so many people. So, Sprout Social has built a technology platform to help brands optimize their social media presences.
- Long-term, this is a tool that has the potential to be adopted by every consumer-facing business in the world.
- Equally as important, Sprout’s software-as-a-service business model features ~80% gross margins with tons of positive operating leverage potential. Profits could be very, very big one day.
- Fundamentally, we are talking about a very strong company here.
- SPT stock has just been knocked down recently on fears the company’s growth trajectory would slow in 2021 as consumers spent more time offline.
- That’s not happening. Sprout is growing faster than ever.
- Bottom Line: It is time to buy the dip in SPT stock.
SPT Stock Price Forecast
- Wall Street analysts believe SPT stock is worth about $85 today.
- We think that’s slightly aggressive. Still, we agree that shares are worth closer to $80 than $60.
- Over the next decade, this is a stock that could run above $150.
Sprout Social is the exact type of stock we like to invest in for the long-haul. A still small company, that a lot of folks don’t know about yet, but which is sitting on an important technology in an emerging investment megatrend that will one day redefine how consumers go about their daily lives.
These early-stage “world changers” — as we like to call them — represent potential 10X investment opportunities, and are the best way to score huge returns in the stock market.
SPT stock is one of them. But it’s just one. We think we’ve identified over 40 similar 10X potential opportunities in early-stage, world-changing technology stocks — and we’ve put all of them into a single investment portfolio in our venture-capital-style, exclusive research platform, Innovation Investor.
To get the names, ticker symbols, and key business details of those potential 10X winners, subscribe to Innovation Investor here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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