Against that backdrop, a stalwart marketing-tech company is making a foray into the IPO market in what would be a rare Wall Street exit for its industry.
Sprout Social, which companies use to manage their social media operations, unveiled paperwork on Friday for an initial public offering.
Still unprofitable, Sprout follows a long line of cloud-based business-software providers, such as newly public names like Slack and Zoom Video, that heavily rely on revenue from a subset of high-paying customers. Sprout tallied 1,965 customers paying more than $10,000 annually as of Sept. 30, which works out to around 8.5% of its total base of roughly 23,000 paid subscriptions.
The Chicago-based company is embarking on an IPO at a challenging time for many would-be rookie stocks.
Investor sentiment has increasingly turned cold toward money-losing companies coming to Wall Street, with Uber's stock still trading under its IPO price and WeWork still reeling in the aftermath of a spectacular aborted offering. Private equity-backed Endeavor Group Holdings, the former William Morris talent agency, recently scrapped its own IPO, citing unfavorable market conditions.
Similar social media management SaaS provider Hootsuite, which was valued at $1 billion after a $60 million Series D in 2014, was reportedly in talks to be acquired for over $750 million in October 2018, but that ended in no deal. Accel, Insight Partners and Omers Ventures were just some of Hootsuite's investors that stood to cash out in a sale.
Other competitors have remained quiet in recent years. For example, Sprinklr, which counts Battery Ventures and Iconiq Capital as investors, was valued at $1.8 billion after a $105 million Series F in 2016. Sprinklr reportedly raised an undisclosed sum in 2017. Lesser-known companies such as Hive, Gremlin Social and NapoleonCat have seen limited or nonexistent fundraising activity since their founding.
Unprofitability challengesSprout's filing shows its largest shareholders include Goldman Sachs (with a 35.5% pre-IPO stake), NEA (30.9%) and Lightbank (21%). It last raised $40.5 million resulting in an $840.5 million valuation in December.
While the nine-year-old Sprout's revenue nearly doubled between 2017 to 2018, the company pulled in $74.56 million in revenue for the nine-month period ending Sept. 30, representing a 32% jump from the year-ago period, according to its IPO paperwork.
For the same time frame, Sprout's losses widened to $20.96 million from a loss of $16.96 million during the comparable period in 2018, the filing shows.
Featured image via Sprout Social