Investing.com – Sprout Social Inc (NASDAQ:) fell 6.2% on Thursday after KeyBanc analysts downgraded the company from Sector Weight to Underweight.
Despite the company’s strategic shift from monthly customers to larger annual deals, the underlying health numbers appear skewed.
KeyBanc’s analysis shows that Sprout Social’s current remaining performance obligation (RPO) and booking metrics are inflated due to the conversion from monthly cohorts to annual contracts.
Adjusting these numbers, analysts found that bookings for the first half of the year have not only slowed, but may have declined on an organic basis year-over-year. This performance is expected to have a longer-lasting impact on the company’s future earnings.
The analysts also noted that expectations for a re-acceleration of sales in 2025 are overly optimistic, suggesting that it may take longer for Sprout Social to meet market expectations, especially given the high likelihood of downward revisions and further multiple compression for the share.
Based on this assessment, KeyBanc has lowered its expectations for the future and set a downside price target of $28, down from the current price of $33.92.
