Smartsheet (NYSE:SMAR) Q3: Beats On Revenue, Stock Soars

Radek Strnad /
2022/12/01 4:28 pm EST

Project management software maker Smartsheet (NYSE:SMAR) reported Q3 FY2023 results beating Wall St's expectations, with revenue up 37.9% year on year to $199.5 million. The company expects that next quarter's revenue would be around $206 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Smartsheet made a GAAP loss of $40.1 million, down on its loss of $36.7 million, in the same quarter last year.

Is now the time to buy Smartsheet? Access our full analysis of the earnings results here, it's free.

Smartsheet (SMAR) Q3 FY2023 Highlights:

  • Revenue: $199.5 million vs analyst estimates of $194.3 million (2.69% beat)
  • EPS: -$0.31 vs analyst estimates of -$0.48 (35.1% beat)
  • Revenue guidance for Q4 2023 is $206 million at the midpoint, above analyst estimates of $204.4 million
  • Free cash flow was negative $4.64 million, down fromv positive free cash flow of $7.1 million in previous quarter
  • Net Revenue Retention Rate: 129%, in line with previous quarter
  • Customers: 17,446 customers paying more than $5,000 annually
  • Gross Margin (GAAP): 78.5%, down from 79.6% same quarter last year

Founded in 2005, Smartsheet (NYSE:SMAR) is a software as a service platform that helps companies plan, manage and report on work.

“Our global team delivered another strong quarter, exceeding expectations on both the top and bottom lines and releasing a host of platform innovations at our annual ENGAGE conference,” said Mark Mader, President and CEO of Smartsheet.

Sales Growth

As you can see below, Smartsheet's revenue growth has been impressive over the last two years, growing from quarterly revenue of $98.9 million in Q3 FY2021, to $199.5 million.

Smartsheet Total Revenue

And unsurprisingly, this was another great quarter for Smartsheet with revenue up 37.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $12.8 million in Q3, compared to $18.3 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Smartsheet is expecting revenue to grow 30.8% year on year to $206 million, slowing down from the 43.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 28.4% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Smartsheet reported 17,446 enterprise customers paying more than $5,000 annually, an increase of 764 on last quarter. That's in line with the number of contracts wins we are used to seeing over the last year, suggesting that the company is able to maintain its current sales momentum.

Smartsheet customers paying more than $5,000 annually

Key Takeaways from Smartsheet's Q3 Results

With a market capitalization of $4.01 billion Smartsheet is among smaller companies, but its more than $194.4 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We enjoyed seeing Smartsheet’s impressive revenue growth this quarter. On the other hand, there was a deterioration in revenue retention rate. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 7.65% on the results and currently trades at $35.15 per share.

Should you invest in Smartsheet right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.