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Sprinklr's (NYSE:CXM) stock fell about 30% on Thursday despite Q3 results beating estimates as the company's initial FY'25 outlook drew concerns and analysts' reactions.
BTIG downgraded the stock to Hold noting that early FY'25 outlook points to major deceleration.
The analysts said that the company's management pointed to lower sales growth in FY25 with an initial framework of about 2.5% quarter-over-quarter growth each quarter, or about 10% for FY25 versus the Street at around 17% growth. This sudden and significant deceleration was attributed to major headwinds from upcoming renewals in Q4 (seasonally largest cohort) with a combo of meaningful downsizing from numerous enterprise customers, some large-customer churn due to their own financial constraints and business model changes, and few large pipeline deals no longer expected to close.
This trifecta was also met with the go-to-market, or GTM, update that the focus on developing the Contact Center as a Service, or CCaaS, business this year, with targeted sales incentives, caused a major shortfall in bookings (and pipeline build) around Social and Marketing (still 60% and 20% of total Annual Recurring Revenue, or ARR, respectively), the analysts added.
The company has now recalibrated reps to sell the products where they have the most success, but created an "air pocket" outside of CCaaS for bookings the next several quarters, which is another vital factor in the paltry FY25 growth expectations, according to the analysts.
Therefore, the analysts, noted that they were downgrading Sprinklr's (CXM) stock to Neutral as the limited near-term growth will likely weigh on the pace of margin expansion and Free cash flow, or FCF, generation compared to previous expectations. In addition, due to the tough macro and pending headwinds around the renewal cycle, they have limited visibility and confidence into when and how quickly the company might reaccelerate topline growth.
Meanwhile, Stifel maintained its Hold rating on Sprinklr (CXM) but lowering its target price to $15 from $16.
The analysts said that the company delivered solid third quarter results but noted greater macroeconomic pressures which will impact the top-line, plus a re-prioritization of GTM resources after a heavy focus on CCaaS impacted other areas of the core business.
In an attempt to gain market share through the company's CCaaS offerings, Sprinklr "over-rotated" its GTM team away from its core Social, Insights, and Marketing platforms, the analysts added.
According to Sprinklr, Marketing was particularly impacted. In addition to these dynamics, the company was met with incremental pressure on upmarket renewals within the quarter, the analysts noted.
Sprinklr's (CXM) initial FY'25 outlook calls for 3-4% less subscription revenue growth than what was expected by the Street, according to the analysts. Thus, given the weaker growth outlook, the analysts maintained their Hold rating, and reduced their target price.
Sprinklr (CXM) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' (2 authors in total in this case) average rating is more positive with a Strong Buy and so is the average Wall Street analysts' rating, with a Buy rating.