附近上门

Chicago-based social media management company has , according to the Securities and Exchange Commission.

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Sprout, which was founded in 2010 and launched publicly the following year, has capitalized on organizations鈥� focus on social media and social media鈥檚 reach to build a platform to manage it all. Its software combines data, workflows and social messaging so that users can manage their social media all from one place.

The company has 23,000 customers in 100 countries, according to its S-1 filing.

Sprout鈥檚 2018 revenue was 99 percent sourced from software subscriptions. The same percentage (99 percent) of its revenue came from software subscriptions the first nine months of 2019. The company estimates that the market opportunity for its product is $13 billion in the United States. And since about 30 percent of its revenue came from customers in other countries in 2018, Sprout believes the international opportunity is 鈥渁t least as large.鈥�

The company鈥檚 IPO comes during a somewhat quiet period for technology offerings, despite such debuts having a strong start to the year in terms of offering volume and dollars raised. Sprout is also pursuing an IPO immediately after WeWork pulled its IPO and had to secure emergency financing to avoid running out of cash. Its results will therefore have more weight than its flotation might have carried had it come in June.

Let鈥檚 explore its history and its financial results on this lovely Friday.

Prior Venture Funding

According to 附近上门 data, Sprout Social has raised roughly . The company was founded in 2010 and raised from Chicago-based VC firm in May of that year. Sprout Social is the first company Lightbank backed since its first round to go public. It won鈥檛 be the firm鈥檚 first exit via IPO, however. Lightbank also invested in (first check ) and (first check ).

Sprout Social鈥檚 last private market financing was , closed in December 2018, which valued the company at roughly $800 million, post-money. That deal was led by the Australian sovereign wealth and saw participation from (which led ) and (which led ).

The company has a dual-class share structure which grants holders of Class B founder shares ten times the voting power as holders of Class A shares, primarily assigned to investors. Co-founders and own 37.4 percent and 41.5 percent of Class B shares, respectively, concentrating the surpassing majority of voting power in their hands.1

Stockholders in a company not only have some governance control (however nominal) over the company; their fate is tied to its financial performance.

Financial Results

Sprout Social鈥檚 business combines majority subscription revenue with a sliver of services income. As such, the business is effectively a pure-SaaS play. We can, therefore, understand it.

The company has historically grown quickly, scaling from $44.8 million of revenue in 2017 to $78.8 million in 2018. That roughly 76 percent gain led to slightly smaller deficits, with the firm鈥檚 net loss slipping from $21.9 million in 2017 to $20.9 million in 2018.

More recently Sprout has continued to grow. That growth, however, has slowed. The company鈥檚 revenue in the first three quarters of 2019 amounted to $74.6 million, up from $56.5 million in the same time period of 2018. Sprout has therefore posted just 32 percent growth in 2019.

And its losses are rising, from a net loss of $17 million in the first nine months of 2018 to a $20.9 million net loss in the same time period of 2019.

A large portion of that larger loss ($5.4 million) stemmed from share-based compensation that was not present in the same period of 2018. Strip out that cost, and the company鈥檚 net loss is smaller than in the preceding year; that fact could help Sprout secure a higher valuation than it might have if its rising losses were more heavily tied to cash-based results.

There鈥檚 good news to be found as well. Sprout鈥檚 gross margins are improving. Its subscription revenue gross margin grew from 72.6 percent in the first three quarters of 2018 to 74.3 percent in the same period of this year. (Investors love high gross margins as they make revenue efficient in helping the business cover its own costs and, hopefully, generate profit.)

Sprout Social had $12.6 million in cash, slightly less than its negative free cash flow from the first three quarters of the year ($13.6 million).

SaaS Bits And Bolts

For SaaS fans, some metrics. The company鈥檚 aggregate Q3 2019-ending ARR was $109.5 million, of which $103.9 million of recurring revenue being what the company calls 鈥淥rganic ARR.鈥� The second number appears to strip out some 鈥渓egacy鈥� incomes, providing a clearer look at the company鈥檚 current operating business.

Continuing on the subscription theme, Sprout鈥檚 number of customers contributing $10,000 ARR or more grew from 1,157 at the end of Q3 2018 to 1,965 at the conclusion of Q3 2019. That鈥檚 a gain of just under 70 percent, a heartening result for its investors we presume.

Finally, this is a SaaS business so let鈥檚 explore how much Sprout鈥檚 customers raise their spend on its products each year:

Our dollar-based net retention rate for the years ended December 31, 2017 and 2018 was 108% and 106%, respectively. Our dollar-based net retention rate excluding our SMB customers for the years ended December 31, 2017 and 2018 was 118% and 115%, respectively.

What does that mean? It means that Sprout鈥檚 largest customers tend to spend a mid-teens percentage more each year that they are a customer. That makes growth for Sprout easier to achieve, and less expensive than it would be without upselling its existing client base. The SMB-inclusive numbers (the smaller set) indicate that even with its smaller accounts, Sprout still sees what we loosely call positive dollar churn.

Summing then, Sprout isn鈥檛 super unprofitable and doesn鈥檛 have titanic cash burn. Its SaaS metrics seem pretty good, but its recent growth pace feels light. Valuing the company will therefore come down to how investors weight its relatively short path to profitability against its (comparatively) slower growth rate.

Watching how Sprout prices, therefore, will be an education.

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