Sprinklr Stock Price Rises 10% – Time to Buy CXM Stock?

Sprinklr (CXM) went public yesterday and the stock soared 10% on its debut. It was trading higher in premarket price action today also. Is CXM a good stock to buy amid the uptrend?

The US traditional IPO market has some signs of life in June. This week only, Sprinklr and Chinese start-up Full Truck Alliance have gone public through the IPO route.

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Sprinklr stock soared on the listing day

Both these companies delivered good listing gains and Full Truck Alliance soared 13% on the listing date. Sprinklr stock made an intraday high of $19.97 yesterday and an intraday low of $14.60 which was even below the IPO price. However, Sprinklr stock eventually closed at $17.6.

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IPO versus direct listing

Notably, traditional IPOs have fallen out with companies that intend to go public. Coinbase and Roblox, two of the biggest listings in 2021, have gone through a direct listing. Some companies prefer direct listing as it helps them cut down on the investment bankers and helps in better value unlocking. Unlike a traditional IPO, there is no fixed price or underwriters and the selling stockholders sell their shares directly to investors in  direct listing.

SPAC (special purpose acquisition company) mergers have also given a hard time to traditional IPOs and the number of SPACs this year far outnumber the number of IPOs. Ride-hailing company Grab and electric vehicle startup Lucid Motors are among the biggest SPAC mergers of 2021.

Sprinklr IPO

Sprinklr is a provider of marketing software and the company was founded in 2009. Initially, the company had kept the IPO price between $18 to $20 and said that it intends to offer 19 million shares in the IPO. However, an apparent cold response from investors prompted the company to lower its IPO size.

Sprinklr sold 16,625,000 shares of its Class A common stock at a price of $16 which was lower than the previous range. It also gave the underwriters an option to purchase an additional 1,662,500 shares at the IPO price. While the company priced the shares lower than its original price band, it got a good response from investors and was trading above $19 in the premarket price action today. That is the midpoint of the price range that Sprinklr was originally targeting in the IPO.

Sprinklr financials

Sprinklr posted revenues of $387 million in the fiscal year ended 31 January 2021. The company had a market cap of $4.4 billion based on yesterday’s closing prices. After accounting for options and other dilutive securities, we get a proforma market cap of $5.2 billion. This would mean a trailing price-to-revenue multiple of 13.4x which looks on the higher side.

Sprinklr is currently posting losses and its net losses in the fiscal year 2021 swelled to $41 million from $39 million in the previous year. That said, a vast majority of companies that have gone public since the beginning of 2020 are making losses. However, investors have still bought into them anticipating future profits and strong growth.

Existing shareholders add to the positions

Meanwhile, Hellman & Friedman, Battery Ventures and ICONIQ Strategic Partners, which are Sprinklr’s existing shareholders, added over 3.1 million shares in the IPO. “Our mindset is we’re investors first and we are comfortable holding public stock,” said Tarim Wasim, a partner at Hellman & Friedman. He added, “The ones we like, we’re always willing to buy more.”

Sprinklr looking at acquisitions

Meanwhile, Sprinklr is optimistic about its Unified-CXM software which is artificial intelligence-powered. Speaking with Reuters, the company’s CEO Ragy Thomas said “In five to 10 years, the customer facing organization will buy primarily two platforms – one CRM platform for all the traditional capabilities and a unified CXM platform for all the modern digital capabilities – and they’ll work very well together.”

The company is also open to acquisitions. “We will always look at M&A as a strategic driver at the appropriate time, but we are unlikely to be buying to grow bigger,” said Thomas.

That said, after the strong listing gains and the expected spike today, CXM stock has started to look a bit stretched. While the company has a strong growth outlook and it sees its total addressable market at $51 billion, it might be prudent to wait on the sidelines and enter the stock at lower levels. Once the initial IPO euphoria dies down, CXM stock should correct from higher levels and offer good entry points.

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