Sprout Social’s 2020 Outlook Surprises; Stock Up 173% YTD

Sprout Social reported better-than-expected 3Q results and announced an upbeat revenue outlook. The social media software company’s 3Q revenues of $33.7 million increased 27% year-over-year and came ahead of the Street estimates of $33.03 million. The company posted a 3Q loss of $0.09 per share, which was smaller than the loss of $0.12 per share expected by analysts, and the year-ago quarter’s loss of $0.30 per share.

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Sprout Social’s (SPT) CEO Justyn Howard said that the “breakout quarter” came on the back of “new customer additions and record net new ARR [annual recurring revenue].” The ARR increased 30% year-over-year to $141.9 million in 3Q. The company’s customers increased to 25,556 at the end of Sept. 30, up from 24,356 as of June 30, and 23,066 as of Sept. 30, 2019.

As for 4Q, Sprout Social expects revenues to land in the range of $35.8 million to 35.9 million, compared to consensus estimates of $35.08 million. It projects 4Q adjusted loss in the range of $0.10 to $0.11 per share. For 2020, the company forecasts sales in the range of $131.4 million to 131.5 million, exceeding analysts’ estimates of $129.98 million. For the full year, Sprout Social expects to report a loss in the range of $0.44 to $0.45 per share. (See SPT stock analysis on TipRanks).

Following 3Q results, Needham analyst Scott Berg raised the stock’s price target to $52 (18.9% upside potential) from $46, amid expectations that “the company could eclipse the 30% revenue growth level in the coming quarters.”

Berg said that “Sprout Social reported excellent 3Q results with sales metrics suggesting 3Q sales trends have rebounded to pre-COVID levels.” He maintained a Buy rating on the stock and said that “Quarterly additions for customers with annual spend greater than $10k increased 246 Q/Q which was the company’s second best ever, and we view as validation of its opportunity to sell into larger enterprise customers.”

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 6 unanimous Buys. The average price target of $53.67 implies upside potential of about 22.7% to current levels. Shares have already rallied by about 172.5% year-to-date.