Expense Rebalancing And AI Focus May Improve Future Prospects Despite Operational Challenges

Key Takeaways

• Strategic expense optimization and workforce reduction are designed to enhance operating margins and support investments in AI and R&D.
  
• Focus on top 400 customers with a new go-to-market model and leadership strengthening aims to drive revenue growth and operational efficiencies.
  
• Operational and technical debt, workforce reductions, and high costs challenge Sprinklr's revenue growth and margins during a critical transition period.

Catalysts

Provides enterprise cloud software products worldwide.

• Sprinklr is focusing on optimizing and rebalancing its expense base with a significant reduction in workforce, expected to improve operating margins and free up capital for strategic investments in go-to-market capabilities, AI, and R&D. This is likely to positively impact net margins and longer-term earnings growth.
  
• The implementation of a new go-to-market coverage model aims to deepen customer relationships and improve account planning, with a focus on the top 400 customers, which is expected to drive revenue growth through better customer engagement and retention.
  
• Strengthening the leadership team with experienced executives in business transformation, auditing, and technology is anticipated to support operational efficiencies and business growth, potentially enhancing overall financial performance and operating income.
  
• Strategic focus on pricing, packaging revamps, and solution selling aligned with multiyear deals are expected to stabilize the business and enhance subscription revenue growth over time.
  
• The company's commitment to improving product delivery, functionality, and AI-driven innovation is expected to bolster its competitive edge and attract higher-value contracts, likely supporting top-line revenue growth and customer expansion within its core enterprise segment.

Sprinklr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sprinklr's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.3% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $76.1 million (and earnings per share of $0.13) by about March 2028, down from $121.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.7x on those 2028 earnings, up from 18.4x today. This future PE is greater than the current PE for the US Software industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 3.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.44%, as per the Simply Wall St company report.

Sprinklr Future Earnings Per Share Growth

Risks

• Sprinklr is dealing with operational and technical debt, which might hinder revenue growth as they stabilize the business and strengthen their teams.
  
• The company experienced elevated churn during FY '25, reflected in a net dollar expansion rate of only 104%, potentially impacting subscription revenue negatively.
  
• They face higher data and hosting costs, expected to negatively impact subscription gross margins by approximately 400 basis points in FY '26.
  
• Sprinklr plans a 15% workforce reduction, which could lead to disruption in operations and potential negative impacts on customer service, possibly affecting earnings.
  
• The company is in a critical transition year, aiming to stabilize and reenergize its core business, which poses risks to achieving projected revenue and operating margin improvements.

Valuation

• The analysts have a consensus price target of $10.542 for Sprinklr based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $7.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $931.9 million, earnings will come to $76.1 million, and it would be trading on a PE ratio of 38.7x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $8.8, the analyst price target of $10.54 is 16.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.