Sprout Social (SPT), a social media management platform, is opting to be less transparent with investors following a multi-year decline in total number of customers and a deceleration in annualized recurring revenue (ARR) growth.

The company says it no longer believes ARR and total number of customers are key performance indicators and will no longer disclose these metrics.

Not surprisingly, the decision not to disclose comes as Sprout’s key metrics deteriorate.

Sprout’s total customer count has fallen from more than 34,000 in 2022 to approximately 30,000 in 2024, a decline of 11.7%.

Likewise, year-over-year (YoY) ARR growth has slowed from 120% in 2021 to 34.5% in 2022, and 30% in 2023.

Separately, Sprout’s latest annual report also revealed a new accounting treatment that understates the company’s operating loss.

Instead of three years, Sprout will now amortize sales commissions over five years.

The change instantly slashed sales and marketing expense by $14.3 million and reduced its operating loss to $60.3 million, or 19.1%

With an Enterprise Value (EV) of approximately $1.5 billion, Sprout is priced as if it will grow annual sales to more than $5.6 billion, up from an estimated $450 million in 2025. To justify its current share price of $26.52 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Sprout must:

—Grow sales 35% annually between 2027-2034, significantly faster than the company’s estimated 2025 and 2026 sales growth of 10.9% and 13.3%, respectively, and the three-year average of 29.4%
—Immediately increase NOPAT margin to 7%, significantly higher than our 2024 estimate of (10.9%) and our 3-year average estimate of (10.76%)
—Increase Invested Capital (IC) Turns to 2 from our 3-year average estimate of 1.43

Notably, the current share price also implies Sprout increases Return on Invested Capital (ROIC) to 14% from our 3-year average estimate of (15.49%):