SPT - Sprout Social

SPT is interesting to me from a value perspective because the valuation is now extremely low relative to the actual business. Current market cap is around $375M. 2025 revenue was $457.5M, so the stock is trading at roughly 0.8x sales. The business is not profitable on GAAP earnings. 2025 GAAP net loss was $43.3M. But gross margin was 78%, operating cash flow was positive, and non-GAAP free cash flow was $45.9M. The product is straightforward. Sprout Social sells cloud-based social media management software. Companies use it to manage social publishing, engagement, customer care, listening, analytics, reporting, workflows, approvals, and social data across teams. The company says it has tens of thousands of customers across more than 100 countries. Revenue is mostly subscription revenue. In 2025, subscription revenue was $453.0M out of $457.5M total revenue. The company is also clearly moving toward larger customers. Customers contributing over $30k ARR grew to 3,803 at the end of 2025, up 13% YoY. Customers contributing over $50k ARR grew to 2,022, up 18% YoY. The acquisitions fit the same social workflow, not some random AI story. Tagger was acquired in 2023 for about $144M to expand into influencer marketing. Sprout says Tagger helps marketers discover influencers, plan/manage campaigns, analyze competitor strategies, report on trends, and measure ROI. NewsWhip was acquired in 2025. Sprout says NewsWhip provides real-time media monitoring and predictive analytics for emerging trends and narratives, and helped them enter PR and crisis monitoring. Repustate was also acquired in 2023 and added sentiment analysis/NLP capabilities. So the actual business is not “AI content generation.” That was the wrong framing. The real question is whether social media management, listening, customer care, influencer marketing, PR monitoring, and analytics are durable enough software categories for Sprout to keep growing and eventually produce better margins. AI cuts both ways here. Sprout is adding AI features, including Trellis in Listening, but the company also lists AI budget reallocation as a risk in its 10-K. So it is not automatically bullish. It depends on whether AI improves Sprout’s product enough to defend or expand spend. Bear case is still real: growth slowed, GAAP losses continue, SBC is large, management spent on acquisitions instead of buybacks, and dollar-based net retention fell to 100% in 2025 from 104% in 2024. Bull case is that the stock is now priced like a broken SaaS company even though revenue still grew 13%, subscription revenue is recurring, gross margin is 78%, free cash flow is positive, and larger customers are still growing. There is also a governance angle. The Class B super-voting shares automatically convert into Class A shares on December 17, 2026. After that, each share has one vote. That could matter if shareholders push harder on dilution, margins, and capital allocation. I am not saying this is risk-free. The chart is terrible and the business still has real issues. But at roughly 0.8x sales, with positive free cash flow and mostly subscription revenue, I think SPT is at least worth looking at as a beaten-down software value case. I own a very large position, so I’m biased.