Shares of cloud-based work management platform Smartsheet (SMAR) surged by 17% in a single session last Thursday following the release of their first-quarter results that exceeded expectations. Despite this impressive performance, SMAR stock is still down 7.4% year-to-date and trades about 10% below its 52-week highs.
With a market value now exceeding $6 billion, investors are wondering if the recent positive earnings report will serve as a foundation for further stock growth in the coming weeks and months. Let’s take a closer look at the factors driving Smartsheet’s business model and the latest insights from analysts post-earnings report.
In the first quarter ending April 30, Smartsheet reported revenues of $262.98 million, marking a 19.6% year-over-year increase. Subscription revenues also saw a significant annual rise of 21% to $249.09 million, contributing to the overall revenue growth. The company has maintained an impressive revenue compound annual growth rate (CAGR) of 40.1% over the past five years.
Adjusted earnings per share (EPS) in the quarter surged by 77.8% to $0.32, surpassing the consensus estimate of $0.27. Smartsheet has consistently exceeded earnings expectations over the past five quarters. Additionally, the company reported strong cash generation activities, with net cash from operating activities increasing by 45% to $50.08 million and free cash flow rising by 46% to $45.68 million year-over-year.
Annualized recurring revenue (ARR), a crucial metric for platform companies like Smartsheet, grew by 19% to $1.056 billion compared to the previous year. The company also saw increases in the number of customers with ARR exceeding $100,000, $50,000, and $5,000 by 26%, 20%, and 8% respectively.
Smartsheet’s strategic initiatives include a revamped pricing strategy aimed at attracting more users within organizations by offering lower per-user rates. This approach aligns with their “land and expand” strategy, focusing on power users and departments initially to drive broader adoption across the company.
CEO Mark Mader highlighted the company’s emphasis on decreasing reliance on small business segments and increasing high-value customers to improve margins. With gross margins already exceeding 80%, attracting more high-value customers is expected to further enhance profitability.
Furthermore, Smartsheet’s premium features like Dynamic View and Data Shuttle have witnessed rapid adoption, while the introduction of AI-based solutions has incentivized upgrades from free plans to paid Enterprise plans.
Analysts are bullish on Smartsheet stock, with an average rating of “Strong Buy” from 18 analysts. Following the strong earnings report, price targets have been raised by analysts at Canaccord Genuity, RBC Capital, and Morgan Stanley. The mean price target stands at $50.12, suggesting a potential upside of 13.2%, with a Street-high target of $63 indicating a possible 42.2% increase from current levels.
In conclusion, Smartsheet’s robust financial performance and strategic initiatives have positioned the company for potential growth, attracting positive outlook from analysts and investors alike.