A whole other suite of businesses fly under investors’ radars because they are less well known but often create compelling opportunities.
What Makes Sprinklr Special?
Regardless of what a business does, it’s got similar challenges in serving and engaging customers, or in other words creating better customer experiences. And that’s where Sprinklr has found a niche with its Customer Experience Management platform.
What sets Sprinklr apart is its capability to deliver artificial-intelligence driven insights and advanced analytics to help companies tailor messages to audience segments.
To boil that down to a tangible example, imagine Coca Cola doesn’t want to pitch Diet Coke to beverage drinkers who want Regular Coke or vice versa. In order to identify audience preferences, or more particularly to personalize options and better cultivate customer relationships, Sprinklr steps in with its customer-centric products.
By allowing major corporations treat customers as if they were local, Sprinklr has set itself apart from its competitors. And the evidence of its success is in the numbers. According to Sprinklr, 9 out of 10 of the most valuable brands use the firm.
The adoption of the firm’s Customer Experience platform by the likes of Microsoft (NASDAQ:MSFT) and L’Oreal has translated to enormous growth.
Is Sprinklr Stock Undervalued?
Over the past four quarters, Sprinklr revenues have grown impressively with year-over-year percentage growth numbers as follows:
- Q4 2022: +23.8%
- Q1 2023: +21.9%
- Q2 2023: +19.6%
- Q3: 2023: +18.5%
Last quarter, it posted revenues of $178.5 million, so if the current pace of growth is sustained the company will soon be tracking towards an annual run rate of $1 billion. As a result, the firm’s $3.7 billion market capitalization doesn’t seem outlandish by any stretch.
Better yet, the company has $147 million in cash and $480 million in short-term investments for a combined total of $627 million in liquid reserves. It has just $31 million of debt, too, so if we factor those into the market cap, the company’s operations are valued at about $3 billion.
Another way of stating that is the company’s current revenue rate suggests it’s trading at close to 4x sales. Now here’s where things get really interesting. For the past fiscal year, it grew by 25.5%, and the year prior it posted revenue growth of 27.3%, eclipsing 2021’s 19.3% growth.
Should the company continue growing revenues at a pace of approximately 25% annually, it will almost double sales every 3 years. In other words, the company is trading at about 1.5x its 2026 sales.
When we compare that multiple to the sector average Sprinklr seems too cheap, which led us to look deeper into its valuation.
After running a 5-year discounted cash flow forecast analysis, we arrived at fair value of $17.27 per share, suggesting upside potential of about 24.7%.
It should be noted that, of the 10 analysts covering the stock, the highest price target is $24 per share while the consensus sits closer to $18.75 per share, above our own target and representing upside of 35.4%.
CXM Competitive Advantages Loom Large
When prospective customers consider Sprinklr, they are faced with two other competing options, Adobe Experience Cloud and Salesforce Marketing Cloud.
Where Sprinklr has stood apart from its rivals is in its artificial intelligence and machine-learning capabilities that are frequently regarded as superior. That technology advantage is complemented by a more user-friendly interface that is solely focused on managing customer experiences.
And the seamless integration that Sprinklr provides has made it a preferable choice for businesses who don’t want a one-size fits all solution like Salesforce but rather a focused platform that offers extensive customer experience insights.
Sprinklr is also viewed frequently as a more cost-effective option with flexible pricing versus Salesforce which tends to get more expensive when analytics modules are bundled in.
A final competitive advantage Sprinklr enjoys is its ability to integrate across various marketing paths and provide cross-channel insights. Those two factors combined create a network effect that acts as a moat against incumbents.
Sprinklr Case Study with Uber Is Eye-Opening
A good example of how Sprinklr adds value can be seen in its case study with Uber, which was struggling to keep up with support quality as its customer numbers grew.
Uber was looking for a way to manage brand content, address safety issues, and speed up customer service response times. Sprinklr began by helping Uber, via Sprinklr Social, to manage global social handles. And Sprinklr Insights was used to monitor safety issues and customer queries.
A couple of years ago another product, Sprinklr Service, was deployed by Uber to offer customer support at scale.
In addition, Sprinklr AI was used to filter the millions of inbound messages each year from social media channels.
What’s clear is that scale challenges relating to customers can and have been successfully addressed by adopting Sprinklr’s products and similar stories can be found at Wells Fargo, Hyatt, Microsoft, as well as a host of other clients served.
The Bottom Line for Investors
Whether it’s helping Uber to resolve customer support challenges at scale, supporting Hyatt to build brand loyalty, or Wells Fargo communicate with a consistent voice, Sprinklr has proven itself an indispensably valuable tool in improving customer experiences of top tier brands.
The company’s offerings have resulted in year-over-year revenue growth for ten quarters straight and there is no sign of the trend slowing down. In spite of the share price rising by 71.5% year-to-date, analysts still see upside of over 35%.
If there were one drawback that stands out it is the company’s lack of profitability. For 3 years straight operating income has been in the red.
With that said, it’s clear the company is sacrificing the bottom line for top line growth and, given its pace, that is likely a smart strategy to defend against incumbents.
All in all, Sprinklr has a lot going for it from its technology advantage to its network effects all channeling into its customer-centric model. The odds are this company has a long runway of growth ahead before it hits a roadblock.
Even with CXM share price up 71% this year, the stock remains well below levels at which it traded a couple of years ago with far lower revenues. That alone is an indication that the future is bright for the firm.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.