Data Privacy Rules And Fierce Rivals Will Shrink Addressable Market

Key Takeaways

• Regulatory, data access, and digital engagement headwinds threaten platform relevance, customer renewal rates, and shrink the total addressable market for long-term growth.
  
• Rising enterprise concentration, AI disruption, and intense competition increase the risk of margin compression, volatility in earnings, and sustained operating income pressure.
  
• Sprinklr is positioned for sustained growth through AI-driven product innovation, deeper enterprise relationships, and global expansion amid rising demand for unified customer experience platforms.

Catalysts

Provides enterprise cloud software products worldwide.

• Heightened data privacy and protection regulations, combined with the ongoing consolidation and tightening of data access by major social networks, are expected to significantly reduce the data available for Sprinklr's platform and limit its relevance to enterprise buyers, driving lower long-term revenue growth and shrinking the company's total addressable market.
  
• The rapid adoption and democratization of generative AI technologies could empower large customers to develop or customize in-house solutions for social listening, analytics, and engagement, reducing the need for robust, third-party unified CXM platforms and undermining subscription revenue and expansion rates.
  
• Sprinklr's heavy dependence on large enterprise customers (with the top 700 contributing almost 90% of revenue) exposes the company to ongoing concentration risk, and recent persistent churn and downsell activity suggest the risk of key account losses or stagnating expansion, resulting in volatile or declining earnings and margin pressure.
  
• Unrelenting competition from both larger SaaS players-with greater resources to absorb costs and innovate quickly-and from new AI-driven CXM startups is likely to force Sprinklr to sustain elevated sales, marketing, and R&D investments. The result will be continued gross margin compression (already impacted by rising AI infrastructure costs) and structurally lower operating income over time.
  
• Widespread customer digital fatigue and increasing use of ad blockers are expected to erode engagement on digital channels, further reducing long-term renewal rates and customer lifetime value for CXM vendors, and potentially causing a prolonged deceleration in Sprinklr's recurring revenue and free cash flow growth.

Sprinklr Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sprinklr compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sprinklr's revenue will grow by 6.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 14.6% today to 5.3% in 3 years time.
• The bearish analysts expect earnings to reach $52.4 million (and earnings per share of $0.01) by about September 2028, down from $120.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 42.5x on those 2028 earnings, up from 15.7x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to decline by 3.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Sprinklr Future Earnings Per Share Growth

Risks

• The strong ongoing digital transformation across global enterprises is fueling rising demand for unified, cloud-native customer experience platforms, which supports durable long-term revenue growth for Sprinklr despite any near-term headwinds.
  
• Sprinklr's increasing focus on AI-native platform development and accelerated AI functionality investments are being met with strong customer uptake, setting the stage for improved product differentiation and the potential for gross margin expansion in the future as premium offerings scale.
  
• Deepening relationships with large enterprise customers, a growing cohort of $1 million+ accounts, and the strategic targeting of expansion within these accounts are likely to increase Sprinklr's recurring revenue base and decrease volatility in earnings over time.
  
• The market's ongoing shift from legacy point solutions to integrated CXM platforms aligns with Sprinklr's core strengths, expanding its total addressable market and supporting higher long-term revenue and operating margin potential as unified solutions become the industry standard.
  
• International expansion and ongoing investments to grow implementation capacity and in-region talent put Sprinklr in a strong position to capture share in underpenetrated markets, driving top-line revenue growth and supporting long-term improvement in financial performance.

Valuation

• The assumed bearish price target for Sprinklr is $8.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sprinklr's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $17.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $985.8 million, earnings will come to $52.4 million, and it would be trading on a PE ratio of 42.5x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $7.71, the bearish analyst price target of $8.0 is 3.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.