Sprinklr has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 7.8% to $5.75 per share while the index has gained 8.9%.
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Why Do We Think Sprinklr Will Underperform?
We’re passing on Sprinklr for now. Here are three reasons why CXM doesn’t excite us, plus one stock we’d rather own.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Sprinklr’s billings came in at $183.5 million in Q2, and over the last four quarters, its year-on-year growth averaged 2.2%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Sprinklr’s revenue to stall, a deceleration versus its 15.2% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Sprinklr’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Sprinklr’s products and its peers.
Final Judgment
We see the value of companies addressing major business pain points, but in the case of Sprinklr, we’re out. That said, the stock currently trades at 1.6× forward price-to-sales (or $5.75 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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