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Sprout Social Reports Strong Q4 Earnings, Faces Retention Challenges

Sprout Social outshines expectations in Q4 2024 earnings, with EPS at $0.19 versus $0.15 estimated and revenue at $107.1M, exceeding the $106M forecast. However, a drop in net retention rate indicates potential risks in customer engagement strategies.

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AI Rating:   7
**Earnings Per Share (EPS)**: Sprout Social reported a non-GAAP EPS of $0.19, exceeding analyst expectations of $0.15 and demonstrating significant growth from $0.02 in the prior year. This increase of 850.0% year-over-year indicates strong profitability and investor confidence, likely positively influencing stock prices. **Revenue Growth**: The company achieved revenue of $107.1 million for Q4 2024, a notable increase from $93.6 million a year ago, marking a 14.4% year-over-year change. This growth surpasses the anticipated $106 million, signaling effective market positioning and could lead to a positive outlook for future earnings. **Free Cash Flow (FCF)**: Free cash flow improved significantly, reaching $6.6 million compared to a negative cash flow of $0.3 million in the previous year. This improvement signals better cash management and operational efficiency, potentially making the stock more attractive to investors. **Net Income**: The GAAP net loss narrowed from $20.1 million in Q4 2023 to $14.4 million this quarter. While still a loss, this reduction reflects operational improvements and strategic focus, which may contribute to positive investor sentiment. **Customer Metrics**: The number of customers generating annual recurring revenue exceeding $50,000 increased by 23% to 1,718, which indicates successful targeting of larger accounts. However, the dollar-based net retention rate fell from 107% to 104%, raising concerns about customer retention and upselling, which could impact future revenue. Looking forward, Sprout Social's guidance suggests revenues between $448.1 million and $453.1 million for the full year, with anticipated non-GAAP net income per share between $0.65 and $0.74. This positive 2025 outlook seeks to maintain growth, but investors should monitor customer retention metrics closely. Overall, while the earnings report reveals strong performance in EPS, revenue growth, and free cash flow, the decline in net retention rate and previous losses signal areas for improvement that may temper the immediate bullish sentiment.
Stocks:  SPT