Sprinklr’s stock drops 15% after Q1 earnings: Should you buy?

on Jun 7, 2024
  • Sprinklr drops 15% post-Q1 earnings despite beating expectations.
  • Analysts downgrade, citing cautious guidance and demand concerns.
  • Technical analysis: Buy near $9.20, target $12.40, stop at $7.45.

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Sprinklr Inc. (NYSE:CXM) saw a significant drop in its stock price, plummeting over 15% following the release of its Q1 earnings report on June 5th. Despite beating analysts’ expectations with a Non-GAAP EPS of $0.09 and revenue of $196 million, the company’s future guidance didn’t impress investors.

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Earnings beat but cautious guidance

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In the first quarter, Sprinklr’s total revenue rose by 13% year-over-year, with subscription revenue increasing by 12%. The company also reported a strong free cash flow of $36.2 million and notable growth in large customers, with 138 clients contributing over $1 million each annually. However, these positive metrics were overshadowed by cautious forward guidance and broader market anxieties.

For the second fiscal quarter, Sprinklr forecasted subscription revenue between $177.5 million and $178.5 million and total revenue between $194 million and $195 million. Non-GAAP net income per share was expected to be in the range of $0.06 to $0.07.

The full fiscal year 2025 guidance also projected modest growth, with total revenue expected between $779 million and $781 million, and Non-GAAP net income per share between $0.40 and $0.41.

Analysts’ reactions

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Analysts reacted strongly to the guidance. Cantor Fitzgerald downgraded the stock from Overweight to Neutral and slashed the price target from $18 to $14. D.A. Davidson also downgraded Sprinklr, cutting the rating from Buy to Neutral and reducing the price target from $17 to $15.

Both firms cited a lack of near-term catalysts and concerns over demand. The downgrades highlighted the perception that Sprinklr’s premium pricing is facing resistance from customers, impacting its ability to drive growth.

Additionally, the company’s transition to a new sales strategy and leadership changes, including the appointment of Trac Pham as Co-CEO, were seen as factors contributing to uncertainty.

Despite these challenges, some analysts believe that Sprinklr’s conservative guidance might be a strategic move to manage expectations amidst a tough macroeconomic environment. The company has a history of beating its own guidance, which suggests potential for upside surprises. Moreover, the expansion of AI features and new product innovations could bolster future performance.

Sprinklr’s valuation remains a topic of debate. While some see the current price as a reflection of the company’s transitional phase and execution issues, others argue that the stock is undervalued given its strong fundamentals and profitability improvements.

Now, let’s see what the charts have to say about the stock’s price trajectory. This technical analysis will delve into the recent price movements, key support and resistance levels, and potential trends that could guide investors on whether to buy, hold, or sell Sprinklr shares following the recent drop.

Support intact: Low-risk entry for bulls

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On Sprinklr’s daily charts we can see that immediately after the stock got listed in June 2021, it entered a downtrend that culminated at the end of 2022 with the stock falling under $8. In the next two years, the stock made a decent recovery reaching above $16, but it started a second downtrend at the start of 2022 that has seen making it a low of $8.33 yesterday.

CXM chart by TradingView

Despite the falling significantly year-to-date, yesterday’s bounce back offers a glimmer of hope and a low-risk entry to Sprinklr’s bulls. The stock is trading close to its long-term support near $7.7, so they can buy it at current levels near $9.20 while keeping a stop loss at $7.45. If the stock doesn’t fall below yesterday’s low we can again see it trading near $12.4 where profits can be booked.

Traders who are bearish on the stock must ideally refrain from shorting it at current levels. If the stock again starts trading below yesterday’s low that would indicate weakness which will be confirmed once it falls below $7.7 where they can initiate a short position with a tight stop loss above the short-term swing high and book profit near $4.6.

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