Find below my analysis of Sprinklr, Inc. (Sprinklr, CXM).
In short, I love the company’s offering, technology and business model. If the company continues to perform and grow its business, in a few years, a major technology company (such as Salesforce or Microsoft) might acquire Sprinklr and its technology.
I think the stock should be bought between 16$ and 17$ considering:
The company has a revenue growth (Y/Y) of approximately 25%.
At 10x Price/Sales, CXM shares are not excessively expensive when considering the company’s revenue growth rate.
The IPO was priced at $16.
What I like:
The technology that powers the Sprinklr platform.
Certain stockholders, including the Sprinklr’s CEO agreed to purchase shares in the IPO. Further, underwriters' option to purchase additional shares of Class A common stock was exercised in full.
The company built a broad partner ecosystem. Whether it's global systems integrators like Accenture or Deloitte, technology partners like Google, Amazon or Microsoft, channel partners like Facebook and Twitter or agencies like Publicis and Havas.
In its last conference call, Sprinklr’s CEO discussed how the company’s AI technology differentiates Sprinklr from other competitors.
The total addressable market for CXM is approximately $51 billion while the stock has a market capitalization of less than $5 billion.
What I dislike:
Sprinklr’s business model is not as scalable as other businesses in its industry.
Overall markets are stretch and good companies might trade lower if selling pressure intensifies. If a major stock market correction would occur, CXM could be cut in half and trade below 10$.
Sprinklr is a software company that develops a Customer Experience Management (CXM) platform.
The company's enterprise cloud software, also called Sprinklr, enables organizations to do marketing, advertising, research, care, sales and engagement across modern channels including social media, messaging, chat and text.
Sprinklr was founded in 2009 by technology executive Ragy Thomas.
2. Initial Public Offering
On 25 June 2021, Sprinklr went public on the NYSE under the symbol CXM.
Sprinklr offered 16,625,000 shares of Class A common stock at $16.00.
On July 1, 2021, the underwriters' option to purchase 1,662,500 additional shares of Class A common stock was exercised in full.
Sprinklr received net proceeds of $276.0 million after deducting underwriting discounts, commissions and other offering expenses of $16.6 million.
Certain stockholders, including the Founder, and entities affiliated with certain of Sprinklr’s directors, agreed to purchase 3,125,000 shares in this offering.
3. Business Activities
3.1 - Market Opportunity
According to Sprinklr:
Unified-CXM is in its early stages of adoption and has the ability to disrupt the traditional ways of managing customer data, including Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and Human Capital Management (HCM) systems.
As of 30 April 2021, the total addressable market for its Unified-CXM platform is approximately $51 billion. This estimate was calculated by using the total number of global enterprises with estimated annual revenue greater than $100 million.
3.2 - Product
Sprinklr is a provider of enterprise software for Customer Experience Management.
Companies rely on Sprinklr to help them manage social media marketing, advertising, research, customer care and engagement.
The insights Sprinklr uncovers from public conversations and comments aim to help brands catch a crisis before it goes viral, develop new products, optimize creative content, reduce customer care costs and more.
The company offers a broad range of digital use cases across the front office, ranging across Research, Care, Marketing & Advertising, and Sales & Engagement.
Sprinklr allows organizations to listen to customers and prospects, learn from them, deliver care and create more personalized experiences across more than 30 digital channels, including messaging, live chat, text, social media and hundreds of millions of forums, blogs, news, and review sites. The Sprinklr platform is architected to ingest unstructured and structured data in real time, including audio, video and images.
Sprinklr maintains a massive data ocean of consumer behaviour and preferences. The Sprinklr platform ingests, processes and analyzes consumer data and behaviour from one of the largest publicly available datasets, with over 500 million data points accessed and ingested monthly.
Sprinklr has five products on one Modern CXM platform: Modern Marketing, Modern Advertising, Modern Research, Modern Care and Modern Engagement.
Sprinklr captures over 500 million conversations and makes 10 billion AI predictions every day, publishes over 20 million brand messages, and handles more than 15 million customer cases every month, while also tracking 35,000 brands and influencers and managing over 2 billion profiles across all digital channels.
Sprinklr’s architecture ensures its customers are always utilizing the latest and most accurate AI models, providing insights to our customers with cutting-edge speed, accuracy, and security.
Sprinklr develops sophisticated machine learning algorithms that combine techniques such as clustering, pattern-match, regressions, prioritization and instance-based triggering amongst others to predict consumer intent in real-time.
Sprinklr develops sophisticated, deep machine learning algorithms that automate techniques to predict consumer intent and sentiment in real-time.
Sprinklr leverages its highly verticalized pre-built AI models to quickly bring high-value enterprise AI models into production use.
3.3 - Customers
According to Sprinklr:
As of 31 July 2021:
It has 1,062 customers, including more than 50% of the Fortune 100.
74 customers with subscription revenue equal to or greater than $1.0 million for the trailing 12-month period.
Its customers are located in more than 60 countries and use its platform in more than 50 languages.
No single customer accounted for more than 5% of its revenue.
During the period ended 31 July 2021, the company generated approximately 36% of its revenue outside the Americas.
It focuses on selling its platform to large global enterprises, which it defines as businesses that have greater than $100 million in annual sales.
It has a highly diverse group of customers across a broad array of industries and geographies.
71 out of the top 100 companies (with 22 out of the top 25) on the Forbes 2020 World’s Most Valuable Brands list are Sprinklr customers, 40 of which are included in its definition of large customers.
Its sales and marketing efforts are focused primarily on three customer groups: Global Strategic Accounts, Large Enterprise Accounts and Enterprise Accounts.
According to the Forbes 2020 World’s Most Valuable Brands list, Sprinklr is the Unified-CXM platform of choice for industry-leading brands including:
9 out of the top 10 technology brands;
9 out of the top 10 financial services brands;
7 out of the top 10 beverages, alcohol and restaurant brands;
7 out of the top 10 automotive brands; and
6 out of the top 10 apparel and retail brands.
3.4 - Client List
According to Sprinklr, some of its clients include:
Amazon Web Services, Microsoft , Oracle
Nestlé, Procter & Gamble
Barclays, UBS, Wells Fargo
Honda Motor, Hyundai Motor
Hyatt Hotels, Marriott International, MGM Resorts
Adidas, Prada, Vodafone Group
3.5 - Growth Strategy
According to Sprinklr, the company intends to:
Continue to innovate to extend its technology leadership and AI-enabled product lines;
Grow its customer base;
Increase revenue from existing customers;
Further expand internationally;
Broaden and deepen its partner ecosystem; and
Selectively pursue acquisitions.
3.6 - Management
Sprinklr’s Executive Officers:
Ragy Thomas, 47, Founder, Chairman and Chief Executive Officer
Previously, Mr. Thomas held various positions with Epsilon, a division of Alliance Data Systems Corp. now owned by Publicis Groupe, where he was most recently the president of interactive services from September 2006 to June 2008.
Vivek Kundra, 46, Chief Operating Officer
Prior to joining Sprinklr, Mr. Kundra served as the COO at Outcome Health from January 2017 to November 2017. Previously, Mr. Kundra was an Executive Vice President at Salesforce, Inc. from January 2012 to January 2017. He was appointed as the first United States Chief Information Officer by President Obama, serving from February 2009 to August 2011.
Pavitar Singh, 36, Chief Technology Officer
Previously Mr. Singh served as our Vice President of Product Development from January 2014 to December 2015 and the Director of Research and Development from April 2012 to December 2013. Mr. Singh holds a Bachelor of Technology from Dhirubhai Ambani Institute of Information and Communication Technology and a Post-Graduate Diploma in Management from the Management Development Institute of Gurgaon in India.
Wilson “Grad” Conn, 57, Chief Experience Officer
From 2006 to 2018, Mr. Conn worked at Microsoft Corporation, starting in October 2006 at Microsoft Research as General Manager for the Microsoft Health Solutions Group, and then moving in October 2011 to become General Manager for the Microsoft U.S. Central Marketing Organization, which he held until leaving Microsoft in March 2018.
3.7 - Risk Factors
According to Sprinklr, some of the risks related to its growth include:
Sprinklr’s business and results of operations could be harmed if the company fails to effectively manage growth and organizational change.
Sprinklr’s revenue growth rate has fluctuated in prior periods and may decline again in the future.
The market for Unified-CXM solutions is new and rapidly evolving, and if this market develops more slowly than Sprinklr expects or declines, or develops in a way that it do not expect, Sprinklr’s business could be adversely affected.
If Sprinklr is unable to attract new customers in a manner that is cost-effective and assures customer success, then its business, results of operations and financial condition would be adversely affected.
Sprinklr’s business depends on its customers renewing their subscriptions and on the company expanding its sales to existing customers. Any decline in Sprinklr’s customer renewals or expansion would harm its business, results of operations and financial condition.
Sprinklr’s business may be perceived as not being secure, and the company’s reputation may be harmed if Sprinklr or its third-party service providers experience a cybersecurity breach or other security incident or unauthorized parties otherwise obtain access to Sprinklr’s customers’ data, Sprinklr’s data or the Sprinklr Unified-CXM platform.
Sprinklr’s business, results of operations and financial condition could be adversely affected if the company is not able to effectively develop platform enhancements, introduce new products or keep pace with technological developments.
Sprinklr’s business depends on its ability to develop and maintain successful relationships with partners who provide access to data which enhances its Unified-CXM platform’s artificial intelligence capabilities and any failure to do so may adversely affect its results of operations and financial condition.
The majority of Sprinklr’s customer base consists of large enterprises, and the company currently generates a significant portion of its revenue from a relatively small number of enterprises, the loss of any of which could harm its business, results of operations and financial condition.
Sprinklr invest significantly in research and development, and to the extent its research and development investments do not translate into new solutions or material enhancements to its current solutions, or if the company does not use those investments efficiently, its business and results of operations would be harmed.
Sprinklr’s international sales and operations, including its planned business development activities outside of the United States, subjects the company to additional risks and challenges that can adversely affect its business, results of operations and financial condition.
3.8 - Other Risks
According to Sprinklr:
The company does not believe that inflation has had a material effect on its business, financial condition or results of operations. Nonetheless, the company notes that if its costs were to become subject to significant inflationary pressures, the company may not be able to fully offset such higher costs through price increases. Sprinklr’s inability or failure to do so could harm its business, financial condition and results of operations.
A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies or a hypothetical 10% change in interest rates would not have had a material effect on operating results for fiscal 2020 and 2021.
4.1 - Revenue
Sprinklr derives its revenues primarily from two sources:
Subscription revenue consists of subscription fees from customers accessing the company’s cloud based software platform and applications, as well as related customer support services; and
Professional services revenue consists of fees associated with providing services that educate and assist the company’s customers with the configuration and optimization of the company’s software platform and applications.
In three months ended 31 July 2021, Sprinklr generated revenues of $103.3 million, an increase of $25.2 million (or 27%) when compared to the three months ended 31 July 2020.
4.2 - Costs of Revenue
Costs of subscription revenue consists primarily of costs to host the Sprinklr software platform, data costs including cost of third-party data utilized in Sprinklr’s platform, personnel-related expenses for Sprinklr subscriptions and support operations personnel.
Costs of professional services revenue consists primarily of personnel-related expenses for our professional services personnel, professional fees, software costs, subcontractor costs and travel expenses.
Total costs of revenues increased $10.0 million, or 37% in the three months ended 31 July 2021 compared to the same period in 2020. This increase was primarily due to higher costs related to third-party cloud infrastructure necessary to meet the increased customer demand, which included $4.2 million increase in the cost to host the Sprinklr software platform.
4.3 - Operating Expenses
Sprinklr’s operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
According to Sprinklr, the company intends to continue to invest in sales and marketing to help drive the growth of its business. During the short term, the company expects travel expenses to remain lower than its historical norms as it focuses its marketing and sales activities on virtual platforms. However, the company expects its sales and marketing expenses will increase in absolute dollars as it continues to invest in sales and marketing activities to acquire new customers and increase sales to existing customers.
4.4 - Free Cash Flow
Free cash flow is a key performance measure that Sprinklr’s management uses to assess its operating performance and its progress towards its long-term goal of positive free cash flow. Free cash flow is typically defined as net cash used in operating activities less cash used for purchases of property and equipment and capitalized internal-use software. Investors consider that free cash flow is a useful indicator of liquidity as it measures a company’s ability to generate cash, or its need to access additional sources of cash, to fund operations and investments.
The following presents a reconciliation of free cash flow to net cash provided by operating activities, for the three and six months ended 31 July 2021:
Three Months Ended 31 July 2021
Net cash (used in) provided by operating activities: -6.46 million
Purchase of property and equipment: -2.69 million
Capitalized internal-use software: -1.44 million
Free cash flow: -10.60 million
Six Months Ended 31 July 2021
Net cash (used in) provided by operating activities: -16.86 million
Purchase of property and equipment: -3.82 million
Capitalized internal-use software: -2.48 million
Free cash flow: -23.20 million
4.5 - Liquidity and Capital Resources
At July 31, 2021, Sprinklr’s principal sources of liquidity were $434.0 million of cash and cash equivalents, $114.8 million of highly liquid marketable securities and available line of credit of $50.0 million under its revolving credit facility.
According to Sprinklr, its existing cash and cash equivalents, marketable securities and cash from operations will be sufficient to meet its working capital needs, capital expenditures and financing obligations for at least the next 12 months.
5. Funding History
According to Equity Zen, Sprinklr’s funding history:
August 2011 - $5.2M
February 2013 - $15.0M
October 2013 - $17.5M
April 2014 - $40.0M
December 2014 - $30.0M
March 2015 - $25.8M
March 2015 - $7.8M
June 2016 - $105M
October 2020 - $100.0M
June 2021 - $276.0M (IPO)
6. Charts, Ratios & Targets
6.1 - Stock Chart (21 September 2021)
6.2 - Key Ratios
Market Cap: 4.61B
Enterprise Value (TTM): 4.41B
Price to Sales (Trailing Twelve Months (i.e. TTM)): 11.01x
Earnings Per Share (Basic) (as at July 31, 2021): -$0.20
Price per Earnings (TTM): N/A
Gross Margin (TTM): 69%
Net Profit (TTM): -10.64%
6.3 - Analysts Price Targets
Highs: 29.00$, Median: 26.00$, Low: 21.00$
10 September 2021 - Wells Fargo: 20.00$
19 July 2021 - JP Morgan: 21.00$
19 July 2021 - JMP Securities: 27.00$
19 July 2021 - Oppenheimer: 29.00$
19 July 2021 - Barclays: 26.00$
Unless specifically indicated otherwise, this content expresses the author's views and should not be construed as investment advice.