KeyBanc downgrades Sprout Social to Underweight

Investing.com - Sprout Social Inc (NASDAQ: SPT) has experienced a challenging start to 2024, leading analysts at KeyBanc to downgrade the company from Sector Weight to Underweight.

Despite the company's strategic shift from monthly customers to larger annual deals, the metrics reporting its underlying health seem distorted.

KeyBanc's analysis reveals that Sprout Social's current remaining performance obligation (RPO) and current bookings metrics are inflated due to the conversion of monthly cohorts to annual contracts.

Upon adjusting these metrics, analysts found that bookings for the first half of the year may have not only slowed but potentially declined year-over-year on an organic basis. This performance is expected to have longer-lasting impacts on the company's future revenue.

The analysts also noted that expectations for a revenue reacceleration in 2025 are overly optimistic, suggesting that it may take longer for Sprout Social to meet market expectations, especially considering the high probability of downward revisions and further multiple compression for the stock.

Given this assessment, KeyBanc has reduced its forward estimates and set a downside price target of $28, down from the current price of $33.92.

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