Sprout Social: Plant A Seed And Watch It Sprout

Summary

• Sprout Social is a platform that empowers companies to navigate and optimize their social media channels from one centralized environment.
• More and more businesses are designing their operations in such a way as to require a social media optimizing platform like Sprout Social.
• And the company's revenues illustrate this idea as the company recently grew its revenues by 30% YoY in 2019 to $102.7 million.
• The pandemic appears to have had little effect on the company as it continues to grow at approximately 30%.
• Sprout Social is still a very interesting play with avenues for further sustained growth as well as accelerated growth. In this light, I rate it a buy at $47.
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Source: Sprout 4Q20 Investor Presentation

Introduction

My investment thesis for Sprout Social (NASDAQ:SPT) mirrors my investment thesis for Shopify (SHOP) to some extent; in that, one of the central pillars of my investment thesis for Shopify in early 2019, when I was buying the company originally, was that it was the best platform for omnichannel selling of physical products. Today, Shopify unequivocally remains the best platform for selling physical products via an omnichannel strategy, i.e., selling through Instagram, Facebook (FB), a company's main website, Pinterest (PINS), etc.

Similarly, Sprout Social enables companies to optimize the execution of their content strategy via an omnichannel approach to social media. In essence, Sprout Social optimizes that voice (of the brand; not actual voice) and messaging that often corresponds with physical products being sold from a platform like Shopify; though Sprout Social fits within any business, product-oriented or not, that's looking to communicate a message via an omnichannel social media approach.

In short, Sprout Social certainly has a winning approach in our current world of ever-proliferating social media channels.

Investment Thesis

From a more technical perspective, Sprout Social is a cloud-based software company that provides solutions for its customers to easily manage their social media accounts in such a way that they get the most out of them (higher ROI on resources expended by the business).

With the proliferation of Social Media channels in full swing, e.g., TikTok, Facebook, Instagram, Snap (SNAP), Pinterest, and many more, companies' social media operations have become entire divisions of their businesses. These social media channels are no longer optional: they are core drivers of business development.

As the world continues to blend the digital realm with the physical realm, social media sales, in many instances, will become the sales for a company, if they are not already so.

Analyst’s Disclosure: I am/we are long CRWD, TWLO, SHOP, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.