- Sprinklr went public in June 2021, raising approximately $266 million in an IPO.
- The firm provides a suite of customer experience management software tools to businesses worldwide.
- CXM has produced revenue growth and strong retention results, but high operating losses, which have been punished by the current stock market.
- If management makes a credible move toward operating breakeven and the cost of capital growth ameliorates, the stock could rise.
- Until either or both of those conditions are present, I'm on Hold for CXM.
A Quick Take On Sprinklr
Sprinklr ( CXM ) went public in June 2021, raising approximately $266 million in gross proceeds from an IPO that priced at $16.00 per share.
The firm sells customer experience management software via a unified suite of applications.
While CXM looks to be currently undervalued compared to its SaaS peers, at least on a revenue multiple basis, management needs to produce results in reducing operating losses.
Until it can prove its ability to make a meaningful move toward operating breakeven, I’m on Hold for CXM.
Sprinklr Overview
New York, NY-based Sprinklr was founded to develop a full-featured suite of software to enable enterprises to manage various aspects of their operations that touch customers.
Management is headed by founder Chairman and CEO Ragy Thomas, who previously held various roles at Epsilon, a division of Alliance Data Systems.
The company’s primary offerings include:
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Research
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Customer Care
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Marketing & Advertising
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Sales & Engagement
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AI Engine
The firm pursues new client relationships with medium and large enterprises via direct sales and marketing approach and through partners and agencies.
Sprinklr’s Market & Competition
According to a 2018 market research report by ResearchAndMarkets, the global customer experience management market is projected to grow to $21.3 billion by 2024.
This represents a forecast CAGR of 22% during the period between 2018 and 2024.
The main factor driving market growth is the increasing need for personalized customer experience.
Also, the growth in the use of machine learning promises to provide greater software value to enterprises by offering recommendations and vertical industry focus.
Major competitive or other industry participants include:
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Adobe
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Avaya
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CA Technologies
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IBM
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Medallia
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Aon Hewitt
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Towers Watson
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SurveyMonkey
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Qualtrics International
Sprinklr’s Recent Financial Performance
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Total revenue by quarter has risen steadily in the past 5 quarters:
5 Quarter Total Revenue (Seeking Alpha)
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Gross profit by quarter has followed approximately the same trajectory as that of total revenue:
5 Quarter Gross Profit (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have remained elevated in recent reporting periods:
5 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
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Operating income by quarter has remained heavily negative, with no discernible move toward operating breakeven:
5 Quarter Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have remained negative, as the chart shows below:
5 Quarter Earnings Per Share (Seeking Alpha)
(All data in above charts is GAAP)
In the past 12 months, CXM’s stock price has dropped 43.1% vs. the U.S. S&P 500 index’s fall of around 5.8%, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation And Other Metrics For Sprinklr
Below is a table of relevant capitalization and valuation figures for the company:
Measure | Amount |
Enterprise Value | $2,460,000,000 |
Market Capitalization | $2,980,000,000 |
Enterprise Value / Sales [TTM] | 4.68 |
Revenue Growth Rate [TTM] | 30.00% |
Operating Cash Flow [TTM] | -$25,430,000 |
Earnings Per Share (Fully Diluted) | -$0.54 |
(Source - Seeking Alpha)
As a reference, a relevant partial public comparable would be Qualtrics International ( XM ); shown below is a comparison of their primary valuation metrics:
Metric | Qualtrics Int'l | Sprinklr | Variance |
Enterprise Value / Sales [TTM] | 5.33 | 4.68 | -12.2% |
Operating Cash Flow [TTM] | $37,240,000 | -$25,430,000 | -168.3% |
Revenue Growth Rate | 43.1% | 30.0% | -30.4% |
(Source - Seeking Alpha)
A full comparison of the two companies’ performance metrics may be viewed here .
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
CXM’s most recent GAAP Rule of 40 calculation was 12% as of FQ1 2023, so the firm needs improvement in this regard, per the table below:
Rule of 40 - GAAP | Calculation |
Recent Rev. Growth % | 30% |
GAAP EBITDA % | -18% |
Total | 12% |
(Source - Seeking Alpha)
Commentary On Sprinklr
In its last earnings call (Source - Seeking Alpha ), covering FQ1 2023’s results, management highlighted the growth of customer interaction activity for clients continuing a transition to live chat and messaging.
Customers use this increasingly online medium to increase revenue, reduce costs and mitigate risks.
The firm recently launched a conversation insights function, which uses AI to ‘surface brand insights that otherwise may never have been discovered,’ from online conversations, enabling corporate communications to gain online insights to improve their future messaging efforts.
In its marketing and advertising suite, CXM launched an AI-enhanced capability to build differing versions of content ‘without investing additional production dollars.’
As to its financial results, total revenue rose by 31% year-over-year, with subscription revenue accounting for 88% of the total and exceeding previous guidance.
Its net dollar expansion rate was 123%, an impressive figure that indicates strong product market fit and efficiencies in its ability to cross sell and upsell within its existing customer base to generate negative net churn in dollars.
While non-GAAP subscription gross margin improved, operating expenses rose markedly year-over-year due to various ‘catch up investments’ from previous periods and management says it expects ‘the magnitude of the year-over-year increase in non-GAAP operating expenses to decelerate in the coming quarters.’
For the balance sheet, the company finished the quarter with $531 million in cash and investments and used GAAP free cash of $3.5 million.
Looking ahead, management expects total revenue growth of 27% for fiscal year 2023, which is an upward guidance figure.
Notably, the firm is seeking declining operating losses in the rest of fiscal 2023, which would be a welcome improvement.
Regarding valuation, the market is valuing CXM at an EV/Sales multiple of around 4.7x.
The SaaS Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 7.5x at June 30, 2022, as the chart shows here:
SaaS Capital Index (SaaS Capital)
So, by comparison, CXM is currently valued by the market at a discount to the SaaS Capital Index, at least as of June 30, 2022.
The primary risk to the company’s outlook is a potential macroeconomic slowdown or recession, which may slow sales cycles and reduce its future revenue growth estimates and increase its operating losses.
A potential upside catalyst to the stock could include lowered interest rate hikes reflecting a reduction in the cost of capital, which has weighed so heavily on money-losing tech stocks in recent quarters.
While CXM looks to be currently undervalued compared to its SaaS peers, at least on a revenue multiple basis, management needs to produce results in reducing operating losses.
Until it can prove its ability to make a meaningful move toward operating breakeven, I’m on Hold for CXM.
For further details see:
Sprinklr Grows Revenue But Needs Operating Breakeven To Soar