Cloud Stocks: Is Smartsheets Pullback A Buying Opportunity?

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Seattle-based Smartsheet (SMAR) recently announced its first-quarter results that failed to impress the market. Its weaker-than-expected billings and a similarly weak outlook sent the stock tumbling in the after-hours session. The stock fell 14% after the result announcement – its biggest decline since listing. But that is a knee-jerk reaction to a stock with a lot more potential.

Smartsheet’s Financials

Smartsheet’s first-quarter revenues grew 52% to $85.5 million, compared with the market’s forecast of $81.3 million. Calculated billings grew to $89.9 million from $69.1 million a year ago but fell short of the analyst expectations of $94.1 million. GAAP net loss was $27.8 million, compared with a loss of $19.8 million. Non GAAP loss was $0.19 per share, compared with the market’s expected loss of $0.12 per share.

By segment, Subscription revenues grew 53% to $77.2 million, and Professional services revenue grew 42% to $8.3 million.

Among operating metrics, the number of all customers with annualized contract values (ACV) of $5,000 or more grew 41% to 9,576. The number of customers with ACV of $50,000 or more grew 101% to 1,040, and the number of customers with ACV of $100,000 or more grew 107% to 391. ACV per domain-based customer increased 45% to $3,866. For the quarter, its dollar-based net retention rate was 132%.

For the second quarter, Smartsheet expects revenues of $86-87 million, with non-GAAP net loss per share of $0.16-0.18. The market was looking for revenues of $88.2 million with a loss of $0.14 per share. Smartsheet expects billings of $91-93 million, again falling short of the Street’s forecast of billings of $104.2 million. It expects to end the year with revenues of $360-$370 million, with a loss of $0.54-$0.45 per share. Given the current conditions, the company no longer provided a full-year billings or cash flow outlook. The market had forecast revenues of $372.47 for the quarter with a net loss of $0.57 per share.

Smartsheet’s COVID-19 Products

Smartsheet is addressing the current crisis by releasing several new products to address the current conditions. For instance, to support federal agencies, Smartsheet allowed US government agencies responding to the crisis free access to its FedRAMP authorized environment Smartsheet Gov. Since the release, nearly 100 federal, state, and local agencies have enrolled themselves for this service. The company continues to push forward in the government sector, as it is working to achieve the Department of Defense Impact Level 4, IL4 authorization. Once Smartsheet gets the status, it will be able to approach the Aerospace and Department of Defense sectors to deploy the Smartsheet Gov platform as well.

The current conditions have resulted in workforce being deployed from anywhere while adapting to rapidly changing conditions and remaining connected to their teams. As part of this offering, it released 30 dashboard templates that focus on areas such as CDC Preparedness, PPE Inventory Tracking, and Remote Employee Onboarding. These templates have already been deployed more than 37,000 times in the reported quarter, and their deployment will continue to increase as more customers transition to getting their employees back into the office.

Smartsheet also launched several meaningful updates to its product, such as ability to work on larger, faster sheets, a new form builder with conditional logic, an extension for Adobe Creative Cloud and an Accelerator for California’s new privacy regulation (CCPA) to help organizations manage regulatory requirements.

Its stock is currently trading at $45.58 with a market capitalization of $5.4 billion. It climbed to a 52-week high of $57.66 last month. It had fallen to a 52-week low of $30.91 in September last year. In 2018, Smartsheet had listed at $15 a share at a valuation of $1.5 billion. Prior to the listing, it had raised $113.2 million from investors including Jenny Ceran, Sutter Hill Ventures, Insight Venture Partners, and Madrona Venture Group.

Smartsheet stock price fall appears to be a knee-jerk reaction. The company is well-positioned to address the global demand for businesses looking to automate and digitize their workflows and drive greater collaboration within their teams. Smartsheet will surely benefit in the longer run.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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