Sprinklr NYSE:CXM Stock Report

Sprinklr Grows Revenue But Needs Operating Breakeven To Soar

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: Research Customer Care Marketing & Advertising Sales & Engagement 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: Adobe Avaya CA Technologies IBM Medallia Aon Hewitt Towers Watson SurveyMonkey Qualtrics International Sprinklr’s Recent Financial Performance Total revenue by quarter has risen steadily in the past 5 quarters: 5 Quarter Total Revenue (Seeking Alpha) Gross profit by quarter has followed approximately the same trajectory as that of total revenue: 5 Quarter Gross Profit (Seeking Alpha) 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) Operating income by quarter has remained heavily negative, with no discernible move toward operating breakeven: 5 Quarter Operating Income (Seeking Alpha) 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.’