SmartRent (SMRT)

Smart home company SmartRent (NYSE:SMRT) beat Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 10.6% year on year to $36.2 million. Its GAAP loss of $0.03 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Founded by an employee at a real estate rental company, SmartRent (NYSE:SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.

Industrial Internet of Things (IoT) companies are buoyed by the secular trend of a more connected world. They often specialize in nascent areas such as hardware and services for factory automation, fleet tracking, or smart home technologies. Those who play their cards right can generate recurring subscription revenues by providing cloud-based software services, boosting their margins. On the other hand, if the technologies these companies have invested in don’t pan out, they may have to make costly pivots.

Competitors offering similar products include Vivint Smart Home (NYSE:VVNT), Alarm.com (NASDAQ:ALRM), and Resideo (NYSE:REZI).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, SmartRent’s sales grew at an incredible 24.4% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. SmartRent’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 16.5% over the last two years.

We can better understand the company’s sales dynamics by analyzing its annual recurring revenue (ARR), or the revenue it expects to generate from its existing customer base in the next 12 months. SmartRent’s ARR reached $56.9 million in the latest quarter and averaged 22.9% year-on-year growth over the last two years. Because this number is better than its normal revenue growth, we can see the company generated more revenue from its existing customers than new customers. Holding everything else constant, this is a positive sign as it should lead to lower sales and marketing expenses.

This quarter, SmartRent’s revenue fell by 10.6% year on year to $36.2 million but beat Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 13% over the next 12 months, an improvement versus the last two years. This projection is commendable and indicates its newer products and services will fuel better top-line performance.

SmartRent has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.3% gross margin over the last five years. Said differently, SmartRent had to pay a chunky $83.65 to its suppliers for every $100 in revenue.

This quarter, SmartRent’s gross profit margin was 26.4%, down 6.8 percentage points year on year. SmartRent’s full-year margin has also been trending down over the past 12 months, decreasing by 3.2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

SmartRent’s high expenses have contributed to an average operating margin of negative 40.5% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, SmartRent’s operating margin rose by 15 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

SmartRent’s operating margin was negative 19.4% this quarter.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although SmartRent’s full-year earnings are still negative, it reduced its losses and improved its EPS by 53.7% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For SmartRent, its two-year annual EPS declines of 15.5% mark a reversal from its (seemingly) healthy five-year trend. We hope SmartRent can return to earnings growth in the future.

In Q3, SmartRent reported EPS of negative $0.03, up from negative $0.05 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects SmartRent to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.35 will advance to negative $0.14.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

SmartRent’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 24.4%, meaning it lit $24.36 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that SmartRent’s margin expanded by 1 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

SmartRent burned through $3.22 million of cash in Q3, equivalent to a negative 8.9% margin. The company’s cash burn was similar to its $3.93 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

SmartRent’s five-year average ROIC was negative 51.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, SmartRent’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

SmartRent is a well-capitalized company with $100 million of cash and no debt. This position is 39.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see SmartRent beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its ARR missed. Overall, this print had some key positives. The stock traded up 7% to $1.46 immediately after reporting.

Updated: December 4, 2025 at 10:10 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in SmartRent.

We think SmartRent is a solid business. To kick things off, its revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its ARR growth has been marvelous. On top of that, its expanding operating margin shows the business has become more efficient.

SmartRent’s EV-to-EBITDA ratio based on the next 12 months is 119.6x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $1.73 on the company (compared to the current share price of $1.96).