SPT & SITE Report. Sell SITE
Sprout Social (SPT) reported Q3 results yesterday that beat expectations. Revenue was up 46% to $49.1 million versus expected growth of 42%. Adjusted EPS was -$0.03 versus $0.01 expected. Customer count grew 20% to 30,705, customers spending over $10K in ARR grew 57% to 4,380, and customers spending over $50K grew 98% to 478. The company’s work to grow in the mid-market and enterprise segments are bearing fruit (and should continue to do so). Management sees Q4 revenue growth of 37% and full-year 2021 revenue growth of 40%, to around $186 million, and adjusted EPS of -$0.15 (versus -$0.21 consensus). Finally, Sprout announced an integration with WhatsApp messaging to bring that platform into its product suite. Stepping back, this growth story is alive and well. That said, with the stock trading with an EV/2022 estimated revenue multiple near 30 we’ll need investors to keep paying a handsome premium for SPT to go meaningfully higher. At this stage in the game, with tapering set to begin soon and heightened focus on interest rates (likely to go up) I think sitting on our current SPT position and not adding to it is the right call.
Sprout Social (SPT) reported Q3 results yesterday that beat expectations. Revenue was up 46% to $49.1 million versus expected growth of 42%. Adjusted EPS was -$0.03 versus $0.01 expected. Customer count grew 20% to 30,705, customers spending over $10K in ARR grew 57% to 4,380, and customers spending over $50K grew 98% to 478. The company’s work to grow in the mid-market and enterprise segments are bearing fruit (and should continue to do so). Management sees Q4 revenue growth of 37% and full-year 2021 revenue growth of 40%, to around $186 million, and adjusted EPS of -$0.15 (versus -$0.21 consensus). Finally, Sprout announced an integration with WhatsApp messaging to bring that platform into its product suite. Stepping back, this growth story is alive and well. That said, with the stock trading with an EV/2022 estimated revenue multiple near 30 we’ll need investors to keep paying a handsome premium for SPT to go meaningfully higher. At this stage in the game, with tapering set to begin soon and heightened focus on interest rates (likely to go up) I think sitting on our current SPT position and not adding to it is the right call.
HOLD
SiteOne (SITE)
was added to the portfolio as a swing trade opportunity just two weeks ago. As I wrote in the October Issue, “We will enter this position with the intent hold it for a short while (several weeks to a few months) and try to capture a modest gain in the 10% to 20% range.” Two weeks in, with the help of today’s rally, our paper gain stands at roughly 20%. The Q3 earnings report was great. Revenue was up 24.5% to $936.4 million (beating by around $31 million) while adjusted EPS of $1.74 was up 61% and beat by $0.49. Full-year guidance is increased by more than the Q3 beat, from $335 - $365 million to $380 - $400 million. The big question now is this: do we try to capture more gains here? In my mind, no. I like our plan and it has worked out, so let’s just work the plan and book the gain. If you wish to hold SITE I wouldn’t argue (too much) as I think long term it goes higher. At the same time, the chart (see below) is telling us the stock is a little extended here and, with the market rallying recently, I wouldn’t rule out a pullback. On balance, I think it’s a good time to close out the gain and wait for the next opportunity. SELL