Sprout Social Inc - Class A (NASDAQ:SPT), a provider of cloud-based social media management software, reported financial results for the fourth quarter of 2025 that surpassed analyst expectations on the top and bottom lines. However, the company's forward-looking guidance and shifting customer metrics appear to be the focal points for investors, as evidenced by a muted to negative initial market reaction following the announcement.
Earnings Snapshot: A Beat on Key Metrics
For the quarter ended December 31, 2025, Sprout Social delivered revenue of $120.9 million, marking a 13% increase year-over-year. This figure came in ahead of the analyst consensus estimate of approximately $120.0 million. The company's profitability, as measured by non-GAAP earnings per share (EPS), also exceeded forecasts.
- Reported Non-GAAP EPS: $0.20
- Analyst Estimate (Non-GAAP EPS): $0.16
- Reported Revenue: $120.9 million
- Analyst Revenue Estimate: ~$120.0 million
The performance indicates a continuation of steady, albeit moderated, growth for the company. Management highlighted strong growth in remaining performance obligations (RPO), a key indicator of future revenue, which increased 15% year-over-year to $404.0 million.
The Outlook and Market Reaction
While the quarterly beat is a positive, investor attention has quickly shifted to the company's guidance for the upcoming periods. Sprout Social's forecast for the first quarter of 2026 calls for revenue between $119.9 million and $120.7 million. The midpoint of this range, approximately $120.3 million, falls slightly below the current analyst consensus estimate of $122.7 million.
For the full year 2026, the company expects revenue in the range of $490.2 million to $495.2 million. This outlook is notably below the broader analyst sales estimate of $511.6 million provided in the context. The guidance suggests a deceleration in growth, which is likely a primary factor in the stock's negative after-hours performance following the report.
Strategic Shift: Doubling Down on Enterprise Customers
A central theme of the earnings release was Sprout Social's continued strategic pivot toward larger, higher-value customers. The company has formally changed its key customer metric, moving away from tracking customers with over $10,000 in Annual Recurring Revenue (ARR) to focusing on those contributing $30,000 or more.
Key customer cohort highlights from Q4 2025:
- Number of customers with ≥$30,000 ARR: 3,803 (up 13% year-over-year)
- Number of customers with ≥$50,000 ARR: 2,022 (up 18% year-over-year)
- Approximated subscription revenue contribution from ≥$30K ARR customers grew 22% in 2025 and now represents 59.1% of total subscription revenue.
This shift is a double-edged sword. While it demonstrates success in penetrating the lucrative enterprise segment and should lead to higher average contract values, it is accompanied by a decline in broader retention metrics. The company's dollar-based net retention rate fell to 100% for 2025, down from 104% in 2024. When excluding small and medium-sized business (SMB) customers, the rate was 102%, down from 108%. This indicates that expansion within the existing, larger customer base is not yet fully offsetting churn or contraction elsewhere.
Long-Term Ambition and Product Development
Alongside the results, CEO Ryan Barretto announced a new long-term operational goal: to achieve a 30% score on a "Rule of 40" framework (calculated as year-over-year revenue growth plus non-GAAP operating margin) by the fourth quarter of 2027. This target underscores management's commitment to balancing growth with improving profitability.
The company also continues to invest heavily in its AI-driven platform, Sprout AI, recently unveiling "Trellis," a proprietary AI agent designed to turn social data into business intelligence. These developments aim to solidify its competitive position in a crowded market.
Conclusion
Sprout Social's fourth-quarter results demonstrate its ability to exceed near-term financial targets and execute on its enterprise-focused strategy. However, the market's tepid reaction reflects concerns over a growth slowdown implied by its 2026 revenue guidance and the evolving dynamics of its customer base as it transitions upmarket. The company's future success will hinge on its ability to consistently land and expand within large enterprises while improving retention metrics and progressing toward its stated Rule of 40 target.
For a detailed look at upcoming earnings dates and analyst estimate revisions, you can view more information here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
