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February 23, 2022

Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line.

Sell One Quarter Sprout Social (SPT). Sell SentinelOne (S).
Sprout Social (SPT) reported a terrific Q4 yesterday and offered above-consensus guidance for 2022. Despite the good results and outlook, we’re going to sell another one-quarter position to take our stake down to one half today. The bottom line is it continues to be a challenging environment for pure growth stocks, and we need to continue to adapt to the times.

On to the results. In Q4 revenue was up 43% to $53.3 million (beating by $2 million) while adjusted EPS of -$0.05 improved by a penny (and beat by $0.02). Management issued preliminary 2022 revenue guidance of roughly $250 million (+33%), comfortably ahead of $240 million consensus (+28%).

Digging deeper, things seem to be going very well at Sprout Social. Businesses, and especially larger ones, are investing heavily in social and looking for more sophisticated tools to manage it. Sprout has them with its Listening, Customer Care, Premium Analytics and other solutions.

Management talked about how they are involved in conversations with decision makers at the senior executive level in current and prospective accounts. And customers continue to expand their spend with Sprout. NRR in Q4 was 112%, up from 110% a year ago. Customers spending over $10K grew by 56%, those spending over $50K grew by 91% and one client is now spending over $1 million.

Bottom line – the company is doing great, and the future looks bright. But … it’s a bear market, especially in high growth, so we’ll take our stake down to a half position. Sell A Quarter, Hold Half

SentinelOne (S)
We are also letting go of SentinelOne (S) today. The stock has broken below my “get out” level of 36 so we’re done. SELL