What Happened:

Shares of social media management software company Sprout (NASDAQ:SPT) fell 37.3% in the morning session after the company reported first-quarter results with its full-year revenue guidance below expectations. Notably, full-year revenue guidance was lowered to a range of $405.0- $406.0 million (vs. previous expectations of $425.3 - $425.5 million). This is never a good sign. Key topline metrics, including ARR (annual recurring revenue), billings, and revenue, also missed analysts' estimates during the quarter. The company called out a couple of factors contributing to the topline underperformance: FIrstly, the mix shift from SMBs to large enterprise customers drove more attention towards closing deals versus creating a new pipeline, leading to a weakness in net new revenue additions (compared to the same quarter last year). Also, the company called out an accounting change, which resulted in a $4.4 million reduction in Q1 sales. In addition, it announced a CEO succession plan. 

Overall, this was a bad quarter for Sprout Social. Following the weak performance, Wall Street analysts downgraded the stock's rating. Baird lowered the stock's rating from Outperform to Neutral and trimmed the price target from $72 to $45. Similarly, Piper Sandler downgraded the SPT's rating from Overweight to Neutral and lowered the price target from $66 to $40.

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What is the market telling us:

Sprout Social's shares are very volatile and over the last year have had 24 moves greater than 5%. But moves this big are very rare even for Sprout Social and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 9 months ago, when the stock dropped 8.7% on the news that the company reported second-quarter earnings in which it provided revenue and non-GAAP operating loss guidance for the next quarter that was below Wall Street analysts' expectations. 

Additionally, full-year revenue guidance also missed Wall Street's expectations and was lowered, which is never a good sign. Furthermore, customer count dropped slightly. Lastly, the company announced the acquisition of Tagger Media, which "positions Sprout to extend our leadership into the influencer marketing market for a new growth and value creation opportunity." Overall, the results were disappointing.

Sprout Social is down 47.9% since the beginning of the year, and at $30.74 per share it is trading 53.5% below its 52-week high of $66.14 from January 2024. Investors who bought $1,000 worth of Sprout Social's shares at the IPO in December 2019 would now be looking at an investment worth $1,845.

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