Smartsheet (SMAR) Stock Trades Down, Here Is Why

Kayode Omotosho /
2024/03/15 12:28 pm EDT

What Happened:

Shares of project management software maker Smartsheet (NYSE:SMAR) fell 11.5% in the morning session after the company reported fourth-quarter results with revenue guidance for the next quarter and full year below expectations. The biggest issue in the quarter stemmed from "tighter domestic spending tied to the current macro environment negatively impacting expansion, particularly in the SMB segment..." The company noted that the impact of the headwinds was worse in the quarter than it was previously. As a result, it wasn't surprising that guidance underwhelmed as management expects the headwinds in the SMB space to continue to be under pressure in FY'25. 

On the other hand, Smartsheet exceeded revenue and billings narrowly during the quarter. Notably, the company crossed the $1 billion ARR threshold during the quarter, in line with the target set at its first Analyst Day in 2018. Lately, the company announced the retirement of Chief Marketing Officer Andrew Bennett, who had been with Smartsheet for nearly ten years. It also announced the appointment of Max Long as President of Go-to-Market. Overall, it was a mixed quarter but weaker quarter for the company given the weak guidance.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Smartsheet? Access our full analysis report here, it's free.

What is the market telling us:

Smartsheet's shares are very volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for Smartsheet and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 9 months ago, when the stock dropped 18.2% on the news that the company reported first quarter results that beat analysts' revenue, subscription revenue, free cash flow, and earnings per share estimates. 

On the other hand, there was a decline in net revenue retention rate, which missed expectations slightly. Customer growth also decelerated and missed. Similarly, revenue guidance for the next quarter was below Consensus, while the full-year guidance was roughly inline. Operating income guidance also came in roughly in line with Consensus. 

The company touched on its AI capabilities adding that "We're planning to expand the AI-based capabilities in our platform to help our customers unlock new, higher value work." Overall, it was a mixed quarter for the company, with the market likely more focused on the weak guidance.

Smartsheet is down 19.1% since the beginning of the year, and at $37.66 per share it is trading 27.1% below its 52-week high of $51.66 from June 2023. Investors who bought $1,000 worth of Smartsheet's shares 5 years ago would now be looking at an investment worth $838.91.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.