Should You Buy Sprinklr IPO Stock, or Give It a Miss?

The U.S. IPO market has come recovered, with a flurry of IPOs last week and several more this week. Sprinklr, a customer service software provider, is also going public this week. Should you buy Sprinklr IPO stock?

Sprinklr offers unified customer experience management. The company, founded in Sep. 2009, launched with its first customer in Jan. 2010. The company's founder, Ragy Thomas, is its current CEO.

Sprinklr has kept its IPO price at $18–$20 and plans to offer 19 million shares, which could see the company raising as much as $361 million. The IPO is expected to be priced on Jun. 24. Goldman Sachs, Morgan Stanley, Wells Fargo Securities Citi, and Barclays are the book-runners for the IPO.

Sprinklr has around 1,200 customers and prides itself on calling half of Fortune 100 companies its clientele. Microsoft, Nike, McDonald’s are among Sprinklr’s customers. In its S1 filing, Sprinklr said that its total addressable market was worth $51 billion as of Apr. 30. The company arrived at the figure by multiplying the annual revenue of all global enterprises over $100 million by the average selling prices for its customers in fiscal 2021.

The IPO will value Sprinklr at $5.5 billion. The company was last valued at $2.7 billion in a Sep. 2020 funding round, where it raised $200 million. The company has raised $400 million in capital so far, or $550 million if we include its $150 million convertible note offering.

Snowflake's IPO, in which even Berkshire Hathaway invested, was at a massive premium over the private market valuation. And Roblox, which went public through a direct listing in Q1 2021, also went public at a massive premium—its listed at a reference price of $45 and the stock surged. As companies going public in a direct listing can’t raise capital, Roblox sought private market funding just ahead of its listing. It also delayed its listing to increase its valuation.

In fiscal 2021 (ended Jan 31, 2021), Sprinklr's revenue rose 19 percent YoY (year-over-year) to $386.9 million. The company's operating loss expanded YoY to $34.9 million from $28.8 million.

It's worth noting that almost all the companies that have gone public over the last year have seen losses. Sprinklr is still spending heavily on sales and marketing, and racked up $163.3 million in fiscal 2021 and $189 million in fiscal 2020. As a percentage of sales, those expenses may fall further as Sprinklr scales up its business.

Sprinklr is seeking a trailing price-to-sales multiple of 14.2x, which looks on the higher side. Also, the company’s IPO valuation is double its private market valuation. This is especially high considering the deal took place when growth stocks were close to their peak. Overall, the IPO looks pricey.