Sprout Social, Inc. (SPT) stock intrinsic value fair value estimate & owner earnings analysis

Sprout Social sells subscription software that lets companies manage their social media: publishing, customer messaging, listening and analytics. Revenue was $457.5 million in 2025, up 12.7% from $405.9 million, and nearly all of it is subscription revenue recognised over contract terms. Customers with at least $30,000 of annual recurring revenue rose from 3,374 to 3,803. Existing customers are, however, no longer expanding: dollar-based net retention fell from 104% to 100% in 2025, so today's growth comes from winning new customers, which is not something we can treat as secured. The company acquired Tagger Media in August 2023 (about $146 million of cash) and NewsWhip in July 2025 (about $52 million). How we measure earnings. We start with cash from operations ($43.4 million in 2025) and remove the swings from working capital, chiefly the growth in prepaid subscriptions (deferred revenue), which is timing rather than earning power. We then deduct stock-based compensation as a real cost, because it is paid to employees in shares that dilute owners: $78.7 million in 2025, about 17% of revenue. Capital spending is small ($4.1 million). On this basis owner earnings were negative in every year we can measure: about -$0.66 per share in 2020, -$0.67 in 2021, -$1.11 in 2022, -$1.39 in 2023, -$1.30 in 2024 and -$0.77 in 2025 (about -$45 million). Even if the working-capital inflow were left in, the result would still be negative (cash from operations less stock compensation and capital spending was about -$39 million in 2025). The company reports positive cash from operations for five straight years and positive non-GAAP profit, but those figures exclude the stock compensation cost, so we do not rely on them. Acquired-intangible amortisation is small ($7.0 million) and is a non-cash charge, so it does not distort the picture. Direction of travel. The loss is shrinking: owner earnings improved by about $4 million in 2024 and about $29 million in 2025 as stock compensation stopped rising and revenue kept growing. The first half of 2026 supports this: revenue of $245.3 million (about 11% higher), cash from operations of $33.7 million versus $23.2 million, and stock compensation of $34.0 million versus $40.0 million a year earlier. The trend since 2023, the year of the acquisition-driven step-up in costs, is a real record, but it is only about two and a half years long, and it depends on management continuing to hold pay and hiring costs down. Our rules do not credit margin improvement or new-customer growth until it has been proven over a longer period. Bear case ($0 per share). Existing customers are flat (net retention 100%), so growth depends on new sales. If stock compensation stays near $79 million a year and operating cash flow stalls, owners see no earnings after paying staff in shares. We do not push this below zero: cash of $95.3 million exceeds the $40 million revolving credit balance (senior secured, due April 2030, with leverage and interest-coverage covenants the company reports it met at year end), so there is no debt-driven shortfall to charge. Base case ($0 per share). The median path we can defend from evidence alone is that the business, after counting stock pay as a cost, has not yet produced earnings for its owners. Last year the trailing owner-earnings loss narrowed by about $29 million; our base case assumes no further improvement beyond what has already happened, because nothing contracted or repeated over many years guarantees it. Growth-path check: trailing actual improvement was about +$29 million in 2025; the base case assumes zero improvement in year 1, which is at or below that rate. The base value is therefore $0 per share: we are not saying the company is worthless, only that we cannot name evidenced owner earnings to value. Bull case ($10.92 per share). The company's own cost levers keep working. Owner earnings improved by an average of about $16 million a year over 2024 and 2025 (about $4 million and $29 million), and the first half of 2026 is running ahead of that. Continuing at $16 million a year takes owner earnings from about -$45 million to roughly breakeven in 2028, then to about $51 million a year by 2031 (roughly 11% of 2025 revenue), held flat thereafter with no further growth assumed. Discounted at 6%, that is worth about $640 million, or $10.92 per share on 58.6 million diluted shares. No net-debt adjustment is made; the modest revolver balance belongs in the bear case, where it does not change the result. What could prove this wrong. Upside: if stock compensation falls faster than we assume, or if the sales restructurings of November 2024 and February 2025 keep lowering costs while revenue grows in the low teens, the business could reach positive owner earnings sooner than in our bull path. Downside: net retention slipping further below 100%, or a return to rising stock compensation, would keep owners in loss territory. We could not reconcile customer-level churn, because the filing gives only the blended retention rate. Margin-of-safety price. Because the base case is $0, the margin-of-safety price applies only after the business condition is met (positive owner earnings for a full year); it is about $3.00 per share, a large discount to the bull value reflecting that the outcome depends on cost discipline that is still unproven.