CXM - Sprinklr: Business With Strong Moat In A Large Market

Summary

• There are strong underlying industry trends to support growth.
• CXM offers a purpose-built platform built upon a single codebase.
• CXM's strong moat stems from its AI fabric.

Recommendation

I believe Sprinklr ( CXM ) has 33% upside. As digital transformation spreads and businesses place a higher value on customer experiences rather than transactions, the demand for customer experience management [CXM] platforms is soaring. CXM platforms enable businesses to address these needs through artificial intelligence. This allows organizations to collect and analyze customer data in real time, enabling them to forecast consumer behavior and provide actionable insights to enhance the customer experience.

Business

CXM offers infrastructure solutions for social media management. It aids businesses in adjusting within their firewall to the socially networked and empowered customer.

Strong underlying industry trends to support growth

In today's hyper-connected and empowered world, the number one strategic initiative for any modern business is to provide more personalized and natural customer experiences across all channels and devices. Customers today are more likely to believe recommendations from their peers than they are to believe those made by businesses; they check the credibility of product claims with reviews written by other customers; and they make snap decisions about whether to continue using a brand after just one interaction.

In addition, the proliferation of new customer channels has resulted in an increase in the volume of unstructured data. Twenty years ago, there wasn't much in the way of social media or video-sharing apps like TikTok or Instagram for customers and businesses to interact with one another. Data generated through these channels is not only growing exponentially in volume and velocity, but is also very different from data collected through more conventional channels. I believe that the ability to collect, assess, evaluate, and take action on information using AI will be a significant competitive advantage in a world of exponentially growing unstructured data. In my opinion, businesses will have a more complete picture of their customers' wants and needs if they collect all available information about them, not just survey results. Companies can increase value of the customer and decrease cost to serve by using the information to make their interactions with customers more meaningful.

The fact is consumers today expect enterprises to provide them with quicker, more coherent, and more personalization across all channels and customer-facing functions. To me, customer experience management and customer-centricity are table stakes in the boardroom now that customers have higher expectations.

Large market opportunity

The widespread implementation of unified-CXM is still in its infancy, but it has the potential to upend established practices in customer data management and inspire a societal shift in which experiences are prioritized over transactions. For this reason, I think the CXM platform market is in its infancy, mostly untapped, and growing rapidly as more global consumer interactions transit to modern platforms with the help of digital transformation.

Management claims in the S-1 filing that its targeted TAM is around $51 billion in 2021. There's no way to be sure, but I take solace in the fact that CXM serves a huge and quickly expanding market, where companies are just starting to see the value of experience data in driving their operations.

Purpose-built platform built upon a single codebase

For nearly a decade, CXM has been working on machine learning algorithms that use a variety of methods to make accurate, real-time predictions about customer intent. Its AI engine can sift through millions of data points from a variety of sources, both structured and unstructured. The data is then analyzed by the CXM AI engine, which makes predictions about how customers will feel and gives them access to useful information. The high level of accuracy achieved by its models is the result of years of training and experience. I believe CXM's first-mover advantage will help it become and remain the industry standard around the world.

After years of development, CXM has developed a solution that helps businesses hear from clients, gain insights, and provide individualized service across various mediums (messaging, live chat, social media blogs, etc.). It is my opinion that customers will benefit greatly from the consistency and simplicity of CXM's single codebase architecture. This is because CXM is able to provide customers with superior speed, accurateness, and reliability using the most up-to-date AI models.

Product is well fit for large enterprises

In my opinion, CXM is the most comprehensive, scalable, and flexible solution for managing front-office operations, including the most intricate omni-channel customer service and marketing operations. I believe the many features and controls of the platform make it attractive to large corporations. In addition, its USP really shines when it's being used to aggregate spending on various point solutions, consume millions of unorganized data sets throughout various mediums, or measure return on investment for massive social media advertising, each of which are what large corporates tend to seek.

Strong moat stems from its AI fabric

CXM's technology, which generates billions of predictions daily, serves as the moat's foundational AI fabric. This AI fabric, which routinely examines and absorbs hundreds of millions of data points, keeps getting better with increased utilization thanks to an ongoing feedback mechanism. This in turn stimulates more user acceptance and, by consequence, potentially resulting in a network effect. CXM's support for over 50 languages is another source of AI's power, allowing customers anywhere to have conversations on social media or through contact centers with their intentions clearly understood. Furthermore, the platform's comprehensive unified structure enables CXM to operate as across different front-office operations for a business, thereby reducing silos and improving synchronization. As the number of businesses using the service increases, so does the platform's staying power. Additionally, customers can save money thanks to the platform's breadth by bundling anywhere from five to over twenty point products; but, if they decided to stop using CXM, they would have to sign contracts with a variety of solutions. This would not only increase operating cost and complication in processes, but they may also face integration issues to imitate CXM's capabilities.

Broaden partner ecosystem and expand overseas

I think CXM should increase its focus on its partner ecosystem strategy since its main audience is massive companies. A few of the reasons why I think it's a good idea to use this strategy are that it increases CXM's reach into new regions, boosts the platform's popularity, and offers helpful extras for putting it all into practice. Right now, CXM works with industry heavyweights including Microsoft ( MSFT ), SAP ( SAP ), ServiceNow ( NOW ), and others. In my perspective, CXM will further develop its partnerships with companies that provide both global and regional services, as well as those who provide complementary technologies and help bring products to market.

In addition, I think there's a big chance the CXM platform can be taken global. Given the quality of these products and services, CXM would be wise to strengthen its international marketing, sales provision of services, and customer support teams in order to expand its business in countries other than the United States, where it currently conducts 36% of its operations as of FY22.

Valuation & model

According to my analysis, CXM is worth about 33% more than it is currently being traded for. However, I expect the company's revenue to slow down in the coming fiscal year due to unfavorable economic conditions. That being said, I expect revenue to bounce back and grow in the following fiscal year as the economy recovers. Right now, CXM is being traded at a relatively low multiple of forward revenue, close to its all-time low. This means that there is a good chance the stock will increase in value if it returns to its historical average. If CXM continues to trade at a multiple of 2.2 times revenue in the next fiscal year, the stock could increase in value by 28%.

Risks

Product might be too sophisticated

CXM solution is a sophisticated one. While major firms like CXM platform's myriad granular controls, mid-market and small businesses, which prefer straightforward solutions, are likely to be put off by the complexity of the platform. A potential threat to Sprinklr's widespread acceptance is the appearance of a rival that can match Sprinklr's level of sophistication without sacrificing its user-friendliness.

Competition

Traditional advertising and consulting organizations, as well as cloud-based solution providers like Salesforce (CRM), Adobe (ADBE), and Qualtrics (XM), all have significant financial resources that contribute to the intense competition in the same field. Sprinklr's expansion could be stunted if the market for similar products grows more cutthroat or if rivals find ways to effectively replicate the features offered by Sprinklr.

Summary

I believe CXM is worth more than what it is today. The company utilizes artificial intelligence to analyze large amounts of data and make accurate, real-time predictions about customer behavior and preferences. Sprinklr's CXM platform is designed to enable businesses to communicate with customers across various channels and provide personalized service. I expect the CXM market to grow rapidly as more companies recognize the value of experience data in driving their operations.

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