Sprout Social 能否熬过 SaaS 末日潮？——对话 Pernas Research 的 Deiya Pernas $SPT

All right, hello and welcome to Yet Another Value Podcast. Today's episode I've got a good one for you. It is Deiya Pernas from Pernas Research. We're going to talk about Sprout Social. The ticker there is SPT. Obviously, nothing is investment advice. See the disclaimer at the end of the podcast and in the show notes. This is a company that has just been brutally, brutally hit by the SaaS apocalypse, and Deiya is going to talk about why he thinks this is overblown. We're going to talk about the company's special call where they said they are a systems-of-record company and an AI beneficiary, as well as their late-February guidance that said they're growing this year and increasing operating leverage. The stock market says, “We don't believe you.” Stock is down 50% this year and 75% over the past 12 months. Anyway, Deiya and I have a really good conversation on this. At the tail end, we talk a little bit about SaaS in general, and I get on a soapbox and start ranting about how boards of directors are overpaid. I'll include a link to Pernas Research in the show notes, as well as a link to the Twitter thread we talked about where Deiya discusses why the SaaS apocalypse is overblown. Before we get to the full podcast, a word from our sponsors. Today's podcast is sponsored by AlphaSense. Earnings season is coming up—it's basically already here as I'm recording this on April 20th—and earnings season is tough. You're following dozens of companies, including the companies you're invested in and all the companies that they tack onto the companies you're invested in, and it takes a lot of time. There's the famous story that when you're on the sell side during earnings season, it is your Super Bowl. There are late nights on the sell side and pretty late nights on the buy side as well, trying to track all these things. AI has changed how I approach earnings season. Now, for all the companies that are tertiary or secondary to the main companies you're covering, instead of feeling like I need to read their transcripts myself, I can put them into AI and say, “Summarize this,” or, “Summarize five of these companies and tell me what the trends are.” AI in general is perfect for that, but AlphaSense in particular has great tools for it. I've been using it to prep for podcasts and everything. AlphaSense has the AI Playbook for Earnings Season to show you how to make better use of your time, cover more companies, conserve your time, and look at these companies in closer detail with AI. It'll show you how leading investment strategy and corporate strategy teams are using AI to stay ahead of the pack: summarizing transcripts instantly, monitoring competitors, and looking at different metrics. I've been blown away by both AI in general and AlphaSense in particular when it comes to summarizing, getting up to speed, and moving quicker. I feel like a kid in a candy store with how much more time I can spend on the creative side and the investing things I like to do versus feeling like I need to read 20 more transcripts today. Visit the show notes or check out the link in the title to download your complimentary copy of the AI Playbook for Earnings Season. If you'd like to try AlphaSense for free, request a trial at alpha-sense.com/yavp. That's alpha-sense.com/yavp. All right, hello and welcome to yet another value podcast. I'm your host, Andrew Walker. With me today, I'm excited to have Deiya Pernas from Pernas Research. Deiya, how's it going?

Fantastic. Glad to be here.

I'm really excited for this one. I've followed your research for a while. The company we're going to talk about here is Sprout Social. I've got years and years of notes on them because they were a popular battleground stock and short thesis around 2022, I want to say. I'm really excited about this, but we're talking here and it's almost the middle of 2026, so I'll turn it over to you: What is Sprout Social, and why are they so interesting?

Around the time the short reports were coming out, I think they were well warranted, basically on valuation alone. The company was knocking on the door of being a large cap, at about $6 billion to $7 billion, and then it's gone down more than 90% since. Now it's knocking on the door of being a micro-cap.

What the company does is provide an operating platform for all of an enterprise's social media needs, across social listening—what are consumers out there thinking? Do we need to adjust our product strategy, and so on—to social care. A lot of customer support is moving into the social realm. Not only do customers want their inquiries or complaints answered in the social sphere, but it's almost like a PR need at this point. It makes you look good if you're out there answering questions, handling issues and problems, and so on.

Then there's obviously where Sprout started, which is scheduling and publishing. A lot of companies have dozens of accounts across a handful of social media networks, and they need to be able to engage with customers in a central way. That's really what the services and products the company provides. This is what the SaaS platform provides, and this type of spend by companies is becoming more and more important. It's moving from a nice-to-have to a need-to-have, so that's part of the thesis.

Perfect. I've got lots to talk about, but let me start with the question I always like to start with. The market is a really competitive place. What do you think you're seeing that the market is missing that makes Sprout an attractive, risk-adjusted reward here?

I think the market is certainly competitive, but there are certain times when the market can be not very discerning at all. I think we're starting to see some of that in the SaaS apocalypse sell-off, especially with the smaller names. If you try to explain the divergence in returns between a lot of the application SaaS players, it tends to be driven by a single factor, which is size.

The market is assuming, and it's somewhat intuitive, that the smaller companies are more like a SaaS tool. They'll be easily replaced. They don't really have any sort of advantages there. Conversely, maybe with larger companies, there's a lot more complexity and a lot more relationships. It's just harder to displace them.

What I think the market is missing is that, number one, this spend is moving from a nice-to-have to a need-to-have for companies. Sprout has more built-in advantages than the market seems to think. We'll get into that and why. As a result of this scare, it's just gotten sold off entirely. The market is underestimating the company's ability to adjust in an AI world and its built-in advantages. All those things put together make the company's valuation—right now, 0.6 to 0.7 times EV-to-sales—make no sense to us.

Cool. I'll dive into that in a second, but let me first ask: I did a podcast with Marcelo Lima, which I thought was really great. I know you put out a Twitter thread, which I can include in the show notes. Neither of you are alone, right? These things are going to have some—I like to say they don't have any term involved, but they will. The contracts don't run out. They generate lots of cash flow.

But I want to start with this question: Is your interest in Sprout driven by the SaaS apocalypse, or is it Sprout-specific? Is it some combination of both? Is it more, “I think the SaaS apocalypse is overblown, so I want to buy Sprout,” or is it, “Sprout in particular looks interesting to me”?

Those things are related. Part of our interest, as people who actively look at companies, is trying to assess whether their valuation is correct. Perception has a lot to do with that, and perception drives flows and whether something's getting bought a lot or sold. So it's really about the valuation.

For us, we're not out here saying that Sprout is the greatest company of all time. It's really, “We disagree with the market on the probabilities of whether this thing has staying power or not.” Because of that, we don't think the valuation makes sense. The valuation is a sizeable part of the story.

It's perfect. No, I'll dive into the Sprout-specific things in a second. It's really interesting: Sprout is down this year, from January to today—let's just round it up to 50%. They report earnings in late February. Their earnings are a beat. They guide. They basically guide and say, “Within 8 quarters, we're going to be a Rule of 40 company.”

And we’re going to do that by taking our non-GAAP EBIT margins up from wherever they are. I can’t remember off the top of my head. I think they’re in the 15% range. We’re going to take them up to 30%, and we’re going to keep a double-digit growth rate, right?

They guide that. They guide their 2026 growth. This is at the end of February, so the SaaS apocalypse is well underway. They guide to, I believe, about 10% growth on the year, right? They’re guiding to all these things.

The interesting thing is the stock is hammered. It’s down 75% in the past year. It’s down 50% year to date. All this hammering is happening as the company is saying, “Hey, our internal metrics are fine,” right? They’re telling you they’re an AI—maybe not a winner, but they’re going to be an AI beneficiary.

They’re telling you that their outlook is good. Their operating leverage is going to explode. It’s just the SaaS apocalypse. I’ll dive into the other sides of it, but it’s really interesting that you’ve got these companies imploding as they’re telling you, “It’s not hitting our numbers yet. It’s still not hitting our numbers yet. Actually, things are pretty good.”

That’s kind of where the argument is. It’s the million-dollar question: Is perception getting way ahead of itself, or are the fundamentals for these companies going to continue to improve? Just as a result of these improving fundamentals, will that be enough to disprove this perception?

The fundamentals will always disprove the perception. It’s only a matter of time. If you can have conviction that these companies are going to continue to grow revenue and you’re going to see economies of scale, then this perception will go away.

My whole thing is that the market is—I think a lot of the sell-off that happened this year was a result of overly priced levels for SaaS to begin the year, anyway. If you remember, there was a first leg down, really, where Anthropic—this kind of production-ready, marginal-cost-zero code—started to proliferate, and that’s where you got the first leg down.

We looked at everything, and we have application SaaS, and that’s what we track, which is now Adobe, Salesforce, and so on and so forth. It seemed that there weren’t really that many bargains. Then February and March, the second leg happened, which is really the agentic fears, and then we started to see, okay, look, median EV-to-sales isn’t screaming enterprise cheap, but clearly, if you look at some pockets, there’s definitely some value out here.

That’s where we see it. Look, again, this is one of the tough things for me with this. There are a lot of tough things, but one of the tough things has been that, for a lot of these companies, the stocks are down 90%.

Sprout is actually cheaper, but we will have the conversation on stock compensation. For a lot of these companies, they’re down 90%, and I look at them and say, “Hey, if I treat stock compensation as a real expense, they’re still trading at, like, 75 times EV to EBITDA, 1,000 times EV to EBITDA, whatever it is.”

Even if I don’t, for many of them they’re still at, like, 30 times EV to EBITDA. I’m like, look, the stocks are down a lot, but they were just priced really, really expensively. They were priced like forever annuities: They were going to grow seats 2% per year, they were going to take price by 3% per year, margins were going to expand forever, and they were never going to have any risk. When that goes away, the stocks go pretty sideways.

I’ll pause there, and then I’m going to dive into Sprout’s specific situation. If you’ve got anything else on overall valuation, I’m happy to chat about that.

Exactly. The market has priced these things as growing annuities. The valuation of a company that we think has a good product, like the SaaS product Figma, was something like 20 times revenue at the beginning of the year. I mean, how does that make any sense? It doesn’t.

A huge derating down to much lower levels makes sense. But again, it’s a case-by-case thing, and some of the smaller SaaS companies have gotten sold off a lot more aggressively. You have to look at things on an individual basis, but broadly, that’s the typical market.

When there are no fears out there, the market tends to overprice things. The SaaS example is a perfect case study of that.

So let’s go back to Sprout specifically. Just to conceptualize it for you guys, I want to make sure: I’ve read the earnings calls, I read the “We Are a System of Record” podcast, and I’ve looked at the website.

For the main Sprout product, who’s a customer they just won? I think they said Phillips 66 was a customer they just won. You are Phillips 66. You want to manage all of your social at once, right?

We plug in—we go into their API—and you can manage your Instagram, your Facebook, your TikTok. I’m getting pretty old, so I don’t have many of these social apps. Your Snapchat, your Twitter—we can manage them all at once through this thing.

We can also give you, in my mind, a real-time graph where it says, “Oh my God, we’ve suddenly gotten a lot of negative things. Do we need to look and see if something bad has happened?” I’m sure there’s a lot more to it than that, but they give you a real-time overview of all your social.

Is that kind of a fair way of thinking about it, or is there anything I’m missing?

Yes, there’s that. It’s also more than that: It’s a central place to manage your engagement with customers across all these accounts and across all these platforms. As you know, engagement is absolutely critical. You need to be out there talking to your customers.

Again, I think this is a necessity. Companies can’t afford to just stick their head in the sand and not do this. On top of that, there’s also social listening. Sprout pays—they don’t, for competitive reasons, get into the nuances too much—but they pay $9 million a year for increased, deeper data access and to provide these companies with all sorts of insights as far as what’s trending in the social sphere.

You put all this together, and I think it’s a very powerful platform that really helps a company stay positioned and stay relevant to its customers.

Perfect. Okay, great overview. My first worry is that it doesn’t seem like it’s that hard. You’re managing 7—it’s a handful of social sites that really matter for this thing—and it doesn’t seem like it’s that hard.

I’m not saying everyone is going to vibe-code their own thing to do it. I believe you even had a thing in your piece where there were people at small businesses who were vibe-coding their own thing, and they were just like, “Eff it, let’s give it to Sprout. It’s taking too much time.”

I don’t think everyone is going to vibe-code, but it’s not like it would be crazy hard to say, “Hey, AI, go monitor my Facebook, Instagram, and TikTok.” What would you say to this AI-vibe-coding worry on the Sprout side?

That’s part of the thesis. I’m from the West Coast, and this is just a random anecdote: I’ve seen a lot of burger chains come and go. My favorite burger chain—and it seems like it’s pretty simple, because it’s just a burger—but it turns out it’s actually quite difficult.

I don’t even know anything about what it takes to make a burger, but I know it’s difficult because not many people seem to do it well. Those that do don’t hang around for much longer. There appears to be something going on in the background there that isn’t very intuitive.

For Sprout, a lot of it has to do with the complexity of API access. One of the reasons why this company seems to have more staying power in the market is that they have privileged relationships with these social media networks.

It doesn’t mean they get these amazing data pipes, but there are hundreds of APIs that are constantly changing and breaking, and they are the first in line to receive updates. They’re not rate-limited like maybe some of the newer players that are more scoped around permissioning. There’s so much that goes into that and around that API web that the market is completely missing.

This isn’t strictly a moat for Sprout. It’s really the incumbents in the space that are the competitors—the Hootsuite, the ones that have the reputational value, that have been doing this for a long time, and that the social media networks trust. That’s Hootsuite, Sprout, and a company called Khoros, which are, give or take, $100 million, all roughly around the same size.

There’s a reason why the API complexity is so central to this. If you look at the history of API openness, so to speak, 2018 was a watershed moment with Cambridge Analytica, where 90 million users across America were getting fed these ads because that data was essentially stolen by some app that was built on top of Facebook.

Fast-forward to the LLM era, and everybody’s nervous about their data being trained on. API restriction tends to be headed in one direction. If you have that reputational value and those relationships, there’s a lot of value there, and it’s one of the things the market is missing.

Oh, yes, and there’s another one that I think is really interesting that I’ve recently discovered: the terms of service and everything. I didn’t realize this would apply more if you’re texting consumers versus if you’re working with Facebook, but I didn’t realize that if you’re texting consumers and the consumer says no or opts out and you keep texting them, you expose yourself to massive financial penalties.

I had no idea. I thought it was just that I feel like I get texts all the time from people I told to stop texting me. But one of the things they’ve been saying is, “Do you really want your AI, which is a lot of times aggressive”—you hear all the stories of AI finding loopholes, doing things, and trying to cover its tracks.

Do you want your AI, which you told to “maximize my social revenue or social engagement,” going into these APIs and maybe breaking the terms of service, and then you, as a business, getting cut off from Facebook and everything? Probably not. I realize I’m stretching the analogy a little bit, but I think it’s very interesting. If you are Rhone or one of these DTC Instagram players, if you trust this to AI and the AI violates the terms of service in any way that is negative for you, you might never be able to advertise on Instagram again, and then your business is a zero.

I think it’s really interesting. I’ll let you comment on that, but then I’ll come back with some bearish points.

Yeah, totally. There’s definitely the other side of it to talk about, but there are all sorts of legal and compliance issues. It’s not that easy to just tell your AI, or whatever it is, to tell Claude to code something that plugs into these API keys. There’s a lot more than that, where the social media networks actually want to know what you’re using the data for.

The amount of compliance, business-verification reviews, and audits that go into this stuff is intense. Building one of your own is not really a serious argument—that people will start building their own, given the lay of the land right now. To me, it’s not a serious argument.

The more serious argument is that agents are going to start to absorb a lot of the interaction layer. Think of agents that companies spend a lot of time and effort, and a lot of dollars, investing in. They’re going to absorb a lot of the interaction layer, and as a result, switching costs are going to go down, which I think is a more serious argument.

But meaningful touchpoints will always remain, at least for the foreseeable future. Again, I think the product is protected. I think they have staying power, and they have enough time to make the right adjustments, which they’re making to the AI and agentic layer.

Let me give one other pushback. The thing I worry about is, when I started, there were only a handful of social networks, right? Meta in particular has its own AI apps and its own AI tools, and it’s rolling out a lot of AI tools.

I understand that most businesses are going to want 1 touchpoint that handles all of them, and Meta is not going to launch an AI tool that manages Snapchat, right? Snap’s not going to let them. Meta is not going to want to.

But I do worry that as all of these huge companies try to intertwine themselves more with their customers, and AI just gets better and better, what if the Meta thing is good enough? There are a lot of businesses that might say, “Hey, 90% of our revenue is Instagram. Let’s just use the free Meta tool,” versus paying Sprout.

Or they might go to Sprout and say, “Hey, you’re charging us per seat”—by the way, that’s another thing we’ll talk about in a second—“you’re charging us per seat. We’re just always price-comparing you against what you’re charging us versus if we go direct with Meta.”

Or they could hire the junior developer and say, “Your Mondays and Thursdays are going to be spent vibe-coding a tool that integrates with Meta, Snapchat, and Google. That’s how we’re going to do it.”

So what do you think about that worry? I guess what I’m driving to is the social networks themselves releasing tools that are either good enough or maybe better. Maybe Meta says, “Hey, we’re not giving you this advanced access to AI. We’re going to hold it back for our own tools and force people to come and use our own tools.”

Yeah, I think that’s a legitimate worry, where some of the platforms’ solutions will be so good that enterprise customers will just go direct to their platforms. But there’ll always be a need for a cross-platform intermediary tool like Sprout.

Customers want to be everywhere where the conversations are being had about them. It’s a question of trade-off. We can go all in on Meta, but we lose out on the other social networks. I don’t think we’re headed to a world where 1 social network is going to be so much more powerful that all the attention goes there.

The other part of it is social listening. Do you really want to put all your eggs in the Meta basket, so to speak? What about X? Don’t you want to know what people are saying on X about you?

You might not want to know. Honestly, you might not want to know.

It’s clear that maybe some companies will do that, but there’ll always be a need for that kind of cross-platform tool.

Let me go to a different one. Again, I’ll do this. I’ve mentioned a few times that in the middle of March, they had a System of Record Day, is what they called it. They basically came out and what they were trying to do was tell investors, “Hey, we are not an AI loser. Here’s how we’re protected.”

They called it a System of Record Day because they said it was a system of record. We’ll go into system of record in a second—we’ve already touched on it—but they had this 1 great quote that has stuck in my head. They said, “An LLM is like someone who went to school but never worked a day in their life.”

I love that, right? Because you’ve got all these examples of LLMs giving just crazy answers to everything. But when I saw that, and later in the day they talked about how Claude is now their best engineer and their best worker, I did wonder: If you’ve got a tech-forward, sophisticated company that’s out here saying its biggest competitor—its biggest worry—is basically a college graduate who’s never had a job, are they taking it seriously enough? Is there any concern there? I guess that’s where I’m driving to.

I think every SaaS company needs to take it very seriously, and the good news is that, by and large, they are. Not only SaaS companies in general, but Sprout in general—they’re taking it seriously.

Part of the thesis for why we don’t think SaaS is dying is that these companies, by and large, have the DNA to change. They made the shift to the cloud and to mobile; their platforms are changing all the time. The culture and the DNA allow them to do that. They’re more future-forward for a lot of things.

Another reason why we think SaaS will navigate the change well is that it doesn’t necessarily cannibalize their current economics. If you look at this other structural rewrite, a company we’re looking at was Western Union. One reason it took Western Union so long to make the shift to mobile is that the take rates were so high on cash. It’s very difficult for a company to kill off part of the golden goose to make the transition to its future.

Remitly has been a popular, common topic of conversation on this podcast, on the blog, and everything. They basically existed because Western Union faced the classic dilemma: “Hey, we’ve got this great network. We take a bunch of money every time someone uses it. Do we want to undercut ourselves with an AI offering that is a fraction of the take rate?”

Exactly. I’ve seen those interviews with Matt Oppenheimer. They’re great. If anybody’s seen them, they should go watch them.

That’s exactly it. SaaS is not in that current situation. They’re able to make the adjustments, and it could even help their economics in some cases, which for some companies it certainly will.

Going back to the original question of how Sprout is evolving, they’ve implemented their AI tool, Trails, which is kind of an LLM wrapper on a lot of the social-listening data, which is quite valuable to be able to query. In the middle of this year, they’re going to have some agentic announcements as well.

I think the company’s taking the threat very seriously. I think we’re going to see some incredible evolutions in that arena. That’s part of the thesis. If they were just sticking their head in the sand and saying it wasn’t a risk, that would be a problem.

So they hosted their big Systems of Record Day, right? You can correct me if I’m wrong, but a couple of months ago, every SaaS company started realizing, “Oh my God, this is trouble. We need to make people think we’re a systems-of-record company one way or another.”

Basically, what that means is, “Hey, the customer’s data is stored with us,” which makes it harder to leave us. That means we’ve got all this unique data that will give us a flywheel for our data. You can correct me if I’m wrong on any of this.

Sprout says, “Hey, I’m just pulling some quotes from their Systems of Record Day.” They say, “Look, we’ve got 15 years’ worth of data on how the world’s biggest brands manage social—every public and private message that they’ve ever done.” And they’re saying, “Hey, when the AI revolution comes, why wouldn’t our AI win? We’ve got all this data to build on.”

You can tell me if I’m wrong in my thinking about systems of record overall, or systems of record when it comes to Sprout. I’ll pause there.

Yeah, a lot of companies want to be that source of truth, that central repository. A lot of SaaS companies are just trying to say whatever might assuage the market. I’m not saying they’re lying or anything, but I’m actually not sure how that assuages market fears.

Your system is just all the customer’s data. In theory, another competitor could come along and migrate all that data into another platform. So, to me, maybe they think that’s what the market wants to hear, but I don’t understand how that assuages things. I guess that’s what I’m saying.

You hit the nail on the head. To me, it’s silly. I understand that there’s some data—especially healthcare data—that, for HIPAA reasons, maybe you can’t move. But just having all this data, the two silly things to me are, first, AI is the best in the world.

I know all the time I’ve got PDFs that I can’t get into Excel. Guess what I do? I say, “ChatGPT, put it in there.” It can migrate this data really quickly. Even if you thought, for some reason, that Sprout owned the data—not the company—or that Sprout having data on 100 companies that they can blend and combine gives them an edge, it just doesn’t seem that great.

I can run ChatGPT or Claude on this in the background for six weeks, right? In six weeks, that would spin up enough data that I could just divorce the platform. So, yeah, that was a risky argument.

It sounds like both of us are maybe not buying it quite as hard as the company is pushing it here.

Yeah, I think maybe it’s just the theory of, “Let’s say what we need to say in order to try to change perception here.” Maybe the market was giving them so little credit for having staying power that it was a way of saying, “Hey, just so you guys know, we’re pretty central to your data records and so on.”

But again, I don’t think it’s a very powerful argument as far as staying power goes.

The last one they like to talk about is integrations. We already talked about the API access and the integrations where they can plug into Facebook and get an advantage from plugging into the social platforms. But they also talk about integrations where, hey, if you’re a customer and you’re using us, not only have we plugged into your Facebook, but on the other side, we’re plugged into your health network or your internal Slack.

They say, “We’ve got all these integrations, and if you’re going to rip us out, it’s actually going to be much more difficult than you think.” They mention that if you’re an asset manager, they’re plugged into a lot of regulatory-sensitive systems. It might be impossible to vibe-code something; you’d really want to be checking that.

If you’re an e-commerce company, they’re plugged in so that when your customer complains online, they can go see the order number and everything. What do you think about the integration stickiness that they argue for?

I just think the more integrations you have, the more people rely on you. It’s part of a broader workflow. If you plug into my CRM and all that stuff, I think it adds to the switching costs of the product if you were to switch it out.

The integrations are very important, I think. Sprout has dozens of them. I know they’re pretty much married to Salesforce as far as a lot of their customers go. So, yeah, that part is going to be difficult to replicate. Is it impossible? No, but it certainly adds to some of the advantages of the product.

Perfect. I think we’ve hit most of the pertinent parts of the bull and bear case with Sprout on the business side so far today. There’s a long history here. You mentioned Salesforce; we could go back to when Salesforce shut down its social product and made Sprout its primary preferred offering, or whatever.

Is there anything we haven’t covered that you think we should be talking about?

I think the real fly in the ointment with Sprout—and maybe the market disagrees with me here—is really the stock-based compensation component.

That’s why I said “business side.” My question was going to be about stock-based compensation.

You got ahead of me there.

It sounds like we’ve covered the business side. So, on the stock-based compensation, just to give people some numbers: in 2025, they say their non-GAAP EBIT is, let’s just round it, $50 million in non-GAAP EBIT, but it includes $80 million of stock compensation.

That’s a huge flip. As we said, their stock is down 75% in the past year, so they have about a $400 million market cap today versus a $1.6 billion market cap a year ago. An $80 million stock-compensation expense is doable when you have a $1.6 billion market cap. It’s a decent bit of dilution, but it’s doable.

When you have a $400 million market cap and $80 million of stock compensation, if this holds for a year, shareholders are going to have no upside because they’re getting diluted like crazy. I laid out a lot of the thoughts there, but I want to ask you for your thoughts on stock compensation here.

I think the stock compensation is completely out of control, and there are a few reasons it’s going to change. Like you said, when your market valuation is very high, you may not have to dilute that much to get to that level—whatever it is, $80 million to $100 million, which has been the range for the last few years.

But they granted about 6 million RSUs last year, which was double the amount before because the share price had come down so much. It creates this exponential problem. That was from an average share price of $16, and now it’s $6 a share. It creates this kind of exponential problem if the share price continues to fall off a cliff, which will inevitably happen if you keep diluting at very aggressive rates.

We do not think the stock-based compensation is sustainable. You can’t have it at 17% of revenue. Their super-voting rights expire on December 17 of this year, which we think will be the catalyst for a restructuring or a fundamental change in the company. Either an activist will come on board, the company will restructure before then, or there will be a sale. Something has to give because this is not sustainable, and there is a constrained time horizon to this.

That’s part of the thesis. It’s almost counterintuitive because it’s one of the odd cases where you like to see high stock-based compensation because you realize it’s something that needs to change. Given that the super-voting rights expire, that will be the catalyst for change. That’s how we’re thinking about it.

No, it makes total sense. I did not realize the super-voting rights expire. It’s one of my favorite catalysts when you’ve got a company that is—I don’t even know if they’re underperforming, because the strange thing here is that the stock is certainly underperforming, but the business is doing well.

If I just gave you the business metrics, you’d say, “Hey, maybe stock-based compensation is high, but this is a business that’s doing well.” They have double-digit growth and are seeing a lot of operating leverage. One of my favorite setups is a business that’s underperforming where the controlling shares are going away, because all of a sudden they’re open to an activist coming in and sending a letter saying, “Hey, your stock’s down 90% over the past year. Maybe the CEO shouldn’t be taking home $7 million per year and $7 million per year in stock compensation.”

You’ve got an executive share incentive, and the stock’s down 90%. Maybe you don’t need 2 of them. Maybe we need some fresh blood. Maybe we need a new strategy. So it is one of my favorite setups.

Yeah, I agree with all that. Maybe you can justify stock-based compensation at 17% or 20% of revenue—it was 17% in 2025, 21% the year before, and 20% the year before that—when you’re growing at 30% or 40% as a technology company.

But when you’re growing around 10%, you absolutely can’t. It’s just impossible that this situation is going to continue for a few years.

I think one of the reasons they sold off around fourth-quarter earnings is obviously the SaaS apocalypse. I thought the CFO was good, but the CFO, who had been there a long time, retired. He didn’t retire by saying, “Hey, it’s February 12; I’m retiring today.” He retired a month out. Then, in March, they named the CEO interim CFO and interim CAO.

I’m sure they’re looking because those roles are interim, but anytime you’ve got a CFO retiring while the stock is down a lot, and then they name an interim CFO and interim CAO, it raises a lot of eyebrows. I want to ask you about that management turnover.

Yeah, we don’t have many nuggets of insight there.

I know that it doesn’t particularly look good. It seems like there’s a lot of confusion going on in the C-suite, which, honestly, there probably is. I’m sure it’s a pretty tumultuous time, and perception fears are part of the struggle of investing in SaaS right now. I think boardrooms in general are pretty anxious.

So, yeah, we don’t have any sort of good information as to why that happened or what the exact cause was. But again, it goes back to the valuation and what we think the space is going through. We still think there’s an opportunity there, despite the fact that you may not have the steadiest executive team in the world.

Do you think this would be an acquisition candidate? I’m thinking particularly Salesforce as the preferred acquirer here, but do you think this is an acquisition candidate at some point?

Yeah, I absolutely do. While they have control, I would not be surprised if there was a takeout. The company is small enough to fit into something like Salesforce. A lot of SaaS companies are thinking right now, “Okay, if we have multiple value vectors, that makes us a lot harder to displace.” I wouldn’t be surprised if you started seeing that across SaaS from other SaaS companies.

We owned Semrush about 6 months ago. We thought there was this narrative that SEO was dying, and a month and a half later, Semrush got acquired by Adobe. Semrush had this area where they were helping a lot of companies understand not only how much they were showing up in SEO, but how much they were showing up now in LLMs. They built out a solution that the market was completely overlooking.

Again, I wouldn’t be surprised if you started seeing larger SaaS companies gobbling up these smaller SaaS players.

Do you think Adobe’s happy with that acquisition right now?

I think Adobe is such a big company compared to Semrush that it’s not that big of a deal.

I’m just asking because Adobe’s obviously in the center of a lot right now. Look, I think we’ve covered Sprout Social, unless you’ve got anything else on it. I’d love to just take another 5 or 10 minutes and talk about what you’re seeing elsewhere in the SaaS apocalypse, but we can certainly talk about Sprout Social if you think there’s anything we’ve missed.

I think that’s about everything we covered on Sprout Social. Again, a lot of it comes down to valuation, and I disagree with the market on the probabilities. I think they have staying power, they’re going to be able to make adjustments, and they’re going to be fine. The market doesn’t think so.

It’s quite simple: when the valuation is so low, you just come out and say, “Well, not a lot has to go right for it to be a double in 12 months.” So, yeah.

Especially if they can get that stock comp under control. Recently—and again, I’ll include a link to the Twitter thread you’ve got—you’ve kind of been saying that, for a lot of the reasons we talked about with Sprout Social, the SaaS apocalypse is overblown. What else are you seeing in the SaaS world that’s kind of floating your boat?

I think we’re trying to put together a better factor model to explain the variation between sell-offs in SaaS companies. If you’re looking at it just from size, that’s not nuanced enough for us. We like SaaS companies that have a real-world component to them. It’s not just a digital kind of situation.

If you look at a company like Procore, it’s a platform that really brings together architects, developers, legal, compliance, and so on with building real estate projects. It’s completely essential, and it’s pretty much taken over the industry as far as some of the larger real estate projects. I think companies like that, especially connected to old industries, are going to be defensible.

A lot of the companies that are in that sphere are just not trading that cheaply. Maybe we just tend to be more price-sensitive than others, but it’s something that we’re thinking about: the real-world component of it and how much that matters. Even if you get agents and they’re doing all these things, it doesn’t retain durability. So that’s kind of what we’re thinking.

But again, I want to go back to the original sell-off. I think the market is correct with the first leg of the sell-off. I think a lot of SaaS companies were overvalued, and I think there needed to be a come-to-Jesus moment. A lot of the stuff around agentic systems is a risk. If anybody says that SaaS companies retain the high level of switching costs they had before and that nothing’s changed, I think that’s wrong. I think that moat has definitely eroded slightly.

But I still think they’re going to be around, and they’re going to have meaningful touchpoints with customers. So, those are kind of our thoughts on it.

No, look, it’s really interesting. I’ve used this story several times, but I talked to some customers of smaller SaaS companies. In October, they were saying, “Oh, the AI is an accelerant. I’m using more of them.” Then in January, some of them were saying, “I’m not using them at all. In the past 3 months, it’s switched so much. I’m not using that company at all anymore. It’s just all AI.”

On the other hand, particularly with some of the larger, better companies, you talk to customers and they’re like, “Look, I can’t switch off it. Maybe I could vibe-code something, but is it going to be right 100% of the time?” I kind of already said it earlier, but it’s very easy from my seat in this shoebox of a closet to say, “Oh, we can all switch.” But for these people, they’re like, “Hey, if I switch and one thing goes wrong, it’s not just that I missed the sale, but I could have legal liability 50 times what I’m paying for these things.” It gets pretty crazy, and it’s tough from the outside to see that type of stuff.

As all these companies say, Claude is their best programmer now. Costs are probably coming down. We mentioned SBC. One way it comes down is that I used to need 1,000 engineers; maybe now I need 100. And, by the way, my 100 are 100 times more efficient, so it’s like I have 10,000. My product roadmap accelerates. The market’s a fascinating place, but it is tough, man.

Yeah, I think there are a lot of arguments to make on both sides. A lot of the arguments are around, well, a lot of these entrants—yeah, the incumbents have the same kind of tools that they do. So, aren’t they going to be able to advance their product at the same rate? A lot of those arguments cut both ways, and the market was kind of overlooking that.

But clearly, everything you said to me boils down to this: it’s a lot easier to replicate a SaaS tool, but building a SaaS company is just as hard or even harder now. Funding for SaaS startups has completely dried up. Trying to get to that level of critical mass and build out customer support and sales as a new SaaS company, I think you’re going to have a very, very hard time.

So there are arguments to be made for entrenchment, and I’m talking enterprise SaaS, really. It’s a fascinating landscape, and it’s changing. You have a lot of these incumbent advantages. A lot of these fears around vibe-coding are not serious arguments for a lot of the reasons you mentioned.

Again, it’s a lot easier to build a SaaS tool. There are some SaaS tools that we’ve replicated using Claude Code, but we’re not going to go out there and try to build a SaaS company and sell this stuff.

I’m sure you’ve had this experience. I’ve been doing a lot of—I can’t use Claude Code because I’m not a programmer and I’m too dumb—but I’ve been doing a lot of Claude Code work and having to build things. They’re really cool, but it is really brittle. I’ll build something and then one day it’ll stop working, and I’ll be like, “Hey, I was actually starting to rely on this. What do I do to fix it?”

You forget these things are pretty brittle. I can spend a day getting the thing back up and running, but I’m building pretty simple stuff, and it’s not like my livelihood is depending on it. It makes my job a little easier. But imagine a company with 1,000 employees that vibe-codes something and it goes out. It’s kind of crazy.

Let me go to something separate. We mentioned stock comp. The one thing I’ve been a little disappointed by—and I’ve started to see some hits here and there—is that you have seen the Adobe and Salesforce big share-repurchase plans, right? But I haven’t really seen, as far as Sprout Social, any big insider buys. I believe the CEO bought a couple hundred thousand dollars of stock, but you haven’t really seen the big insider buys here.

I’ve been really big into the dark arts recently, and you haven’t seen these companies come out and say, “Hey, our stock’s gone from 20 to 5. We’re going to take a big PSU package that only vests if the stock starts hitting 15, but if it does, we’ll make multigenerational wealth,” right? I haven’t seen either of those yet. Now, this has happened fast, right? We’re talking October to April.

A lot of incentive comp doesn't happen in 3 to 4 months' time, but I have seen that elsewhere. AVGO and AMD both gave their CEOs massive, massive incentive comp right before the stock went parabolic, and it seems like both of them are going to make $500 million to $1 billion. I haven't seen that. I haven't seen insiders step up, and I haven't seen directors come in.

I do wonder if it's kind of like—I'll just choose Adobe, because we mentioned it a few times. Cool, they've got a $25 billion share buyback, but it's kind of like, “Hey, we'll return the shareholder money to them, but our money—things are pretty risky over here. We kind of want the all-clear sign before we actually go put our money or our comp or our anything in.”

So, I threw a lot out there, but I'm kind of disappointed by the lack of the dark arts or the real insider bullishness here.

Yeah, and I think maybe if you give it time, things get a lot more interesting and we'll see some of that. It hasn't been that much time yet since this whole SaaS apocalypse craze. I agree with you, the buyback stuff never really impresses me. I think a lot of the reason companies do it is because they think investors will celebrate it.

Boards are notoriously bad at assessing the valuation of their company, and buybacks tend to be a procyclical phenomenon where, essentially, if they have cash and times are okay, they'll buy back a lot of shares. So, at least Adobe's kind of bucking that trend and saying, “Oh, we think our shares are undervalued and we're going to do something very aggressive.” Again, I don't think it's enough.

But a lot of the arguments you made around not seeing huge insider buying and so on and so forth, I think that's just the nature of a lot of, unfortunately, a lot of tech, where they're so hugely compensated in shares that they just tend to be net sellers. Maybe that's something that will also structurally change. You're almost making the case for just a wave of activist pressure in the SaaS complex, which I think you could see at some point. But yeah, unfortunately, that's the state of things with SaaS, where management teams are just net sellers, given the amount of compensation in stock comp.

The longer I do this, I feel like I'm going on a crusade, but I do this and I talk to these boards and they're like, “Hey, our board has a lot of experience. We're very motivated.” I'm like, “Bro, everyone on your board—I can go find wherever their main job is—they're making $5 million per year over there. They get $60,000 in cash here and $140,000 of options every year. They've never bought a share, and you're going to tell me, ‘Hey, they've vested into $300,000 worth of stock options.’ You're going to tell me that's a motivating factor for them? And by the way, the stock's down 75%.”

I just think all these guys are so overpaid, and it's just like, if the stock goes up, they're going to get fabulously wealthy. If the stock goes down, they're going to get wealthy. And as a shareholder, it's my money and my livelihood on the line, and I increasingly am so infuriated by it. I understand I'm not breaking new ground by saying, “Hey, there's a lot of execs overpaid,” but it's just very frustrating.

Yeah, I think the whole principal-agent problems that boards are meant to kind of solve or help with, I think they're woefully bad at. I think the structure needs to be changed. I don't know what the right solution is, but it seems like they just kind of show up and take a check. They're not really there, you know? And especially with small-cap companies, where the board's all the CEO's buddies or something. So, yeah, I think a lot of that needs to be reworked and changed. I don't think it's doing what it's supposed to do.

Yeah. So—or I mean, every time I talk to them, they're like, “Our board is so incentivized.” I'm like, “No, it's not.” I'm thinking of one in particular, which I will not name, but: “Hey, you have 4 board members, and all of them are over the age of 65. One of them is 80, and she retired from her main job 5 years ago, and this is the only board she's on. I'm pretty sure she's collecting a pension. I don't think she's really here to drive shareholder value. If the management team comes and says something, I don't think she's really putting a lot of thought into the pushback here.”

I'm not trying to be ageist, but she's retired from everything, and yeah, I could get on a soapbox for hours, but I'm sure people would get tired.

Yeah, it's really just about perception—putting the right brass in place to show the market that you have a lot of these big hitters on your board or something. But is it for any sort of internal checks and balances or anything like that? No, I don't think so. Yeah, I think boards fall woefully short in that function. I totally agree.

Oh man, now I'm all worked up. I'm going to have to go on a run and get all this frustrated energy out—the boards-making-millions-while-my-stocks-go-down thing. Anyway, anything you want to end with here?

We write and publish research for professional investors and RIAs, so anybody who wants to check it out can visit our website at Paraclete Research.com. Andrew, we had a great time with the conversation. Thanks for the thoughtful questions. You always do a great job with that, and yeah, hope to be on next time.

Open invite anytime you want to come on, whether it's SaaS or anything else. I know you guys cover a ton of other stuff, but anytime you want to come on, open invite. Thanks so much for coming on, and we'll chat soon.

Awesome. Thanks, Andrew. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.