What Happened?
Shares of social media management platform Sprout Social (NASDAQ: SPT) fell 12.6% in the afternoon session after Canaccord downgraded the stock and sharply cut its price target, citing concerns over the company's recent financial results.
The analyst firm moved its rating on Sprout Social to Hold from Buy and lowered its price target to $9.00 from $16.00. The downgrade was prompted by what Canaccord called a "disconnect" between management’s positive outlook and weakening key metrics like deferred revenue over three consecutive quarters. Although Sprout Social's fourth-quarter earnings and revenue surpassed estimates, investors appeared to focus on underlying issues. The company's dollar-based net retention rate softened, and its revenue guidance for the upcoming quarter came in slightly below analyst expectations, fueling concerns about future growth.
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What Is The Market Telling Us
Sprout Social’s shares are very volatile and have had 28 moves greater than 5% over the last year. But moves this big are rare even for Sprout Social and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was about 21 hours ago when the stock gained 6.4% on the news that Nvidia CEO Jensen Huang dismissed fears that artificial intelligence would cannibalize the enterprise software sector. High-growth names like Zscaler (ZS) and CrowdStrike (CRWD) saw significant rebounds as investors reassessed the "AI headwind" narrative that had previously weighed on valuations. Huang's comments acted as a powerful catalyst, signaling that the intersection of generative AI and established software platforms is a symbiotic relationship rather than a zero-sum game. During a CNBC appearance, Huang argued that the market "got it wrong," specifically defending the indispensable role of platforms like ServiceNow. He emphasized that these companies are uniquely positioned to deploy fine-tuned AI agents that utilize their existing specialized tools.
Sprout Social is down 38.9% since the beginning of the year, and at $6.32 per share, it is trading 76.9% below its 52-week high of $27.35 from February 2025. Investors who bought $1,000 worth of Sprout Social’s shares 5 years ago would now be looking at an investment worth $86.81.
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