Market awaits outcome of Sprout Social IPO

The social-focused software market is eagerly awaiting the outcome of Sprout Social’s Initial Public Offering (IPO), after the social media management cloud software platform announced terms last week. It is expected to price this Thursday, December 12, 2019.

The Chicago-based company plans to offer 8.8 million shares at a price range of $16 to $18, raising $150 million, and list on Nasdaq. At the midpoint of the proposed range, Sprout Social would command a fully diluted market value of $894 million.

Founded in 2010, Sprout Social booked $97 million in revenue for the year ended September 30, 2019. Goldman Sachs, Morgan Stanley, KeyBanc Capital Markets and William Blair are the joint bookrunners on the deal.

However, some industry analysts believe Sprout Social faces an uncertain future to due its relatively high price-point in an extremely cluttered marketplace.

Speaking exclusively to The Social Intelligence Lab, Bruce Hogan, CEO of SoftwarePundit, said:

“Overall, we believe that Sprout Social is positioned as a premium product in a highly competitive, commoditized market and therefore has limited long-term upside.

“Overall, Sprout Social's product is superior to the competition, however, for most customers, Sprout Social is priced at 2-4x the cost of Hootsuite, its closest competitor. Sprout Social also faces strong down-market competition from newcomers like AgoraPulse, and up-market competition from established enterprise solutions such as Sprinklr & Khoros.

“A Social Media Manager that we spoke to shared that her company had recently switched from Sprout Social to Agorapulse. She loved Sprout Social, but Agorapulse offered the same core functionality at roughly 1/10th of the cost. Her business saved $18,000 with the switch.”

Hogan continued:

“While social media is vital for today's brands, the channel does not typically generate a significant percentage of company revenue. As a result, we believe it will be difficult for most businesses to justify the incremental cost of Sprout Social.

“While we don't take a short-term view on the IPO, the current market is weary of unprofitable growth businesses. The WeWork IPO debacle and Uber's stock performance are indicators of the trouble that Sprout Social might face.”

You can read SoftwarePundit’s full analysis of the Sprout Social IPO here.

‍