Smartsheet (SMAR) concluded the fiscal 2025 first quarter on a solid note, demonstrating steady progress throughout the quarter. Further, the company’s long-term outlook appears promising, driven by its strategic initiatives and commitment to delivering innovative solutions that meet evolving customer needs. So, should you buy, hold, or sell this stock post its earnings? Read on...

Smartsheet Inc. (SMAR) is the leading enterprise work management platform trusted by millions worldwide, including around 85% of Fortune 500 companies. SMAR surpassed analyst revenue and earnings expectations in the first quarter of fiscal 2025.

For the first quarter that ended April 30, 2024, SMAR reported revenue of $262.98 million, topping analysts’ estimate of $258.20 million. Its subscription revenue rose 21% year-over-year to $249.10 million. Furthermore, the company posted a non-GAAP net income per share of $0.32, compared to the consensus estimate of $0.27.

Smartsheet’s annualized recurring revenue (ARR) was $1.06 billion during the quarter, up 19% year-over-year. Its average ARR per domain-based customer was $9,906, an increase of 16% from the prior year’s quarter. Notably, the number of customers with ARR of $100,000+ grew to 1,970 (26% year-over-year), and $50,000+ rose to 4,028 (20% YoY).

Mark Mader, SMAR’s CEO, said, “We continue to see significant demand from our enterprise customers and now have 72 customers with annualized recurring revenue over $1 million, an increase of 50% year over year. This will be a pivotal year for Smartsheet.”

“We believe the combination of new product innovations, the upcoming launch of our modern pricing and packaging model, and a reinvigorated go-to-market strategy positions us for long-term, durable growth,” Mader added.

For the second quarter of fiscal 2025, the company expects total revenue of $273 million to $275 million, representing growth of 16% to 17% year-over-year. Also, its non-GAAP operating income is expected to be $38-$40 million and non-GAAP net income per share to be $0.28-$0.29.

For the full year, SMAR anticipates total revenue of $1,116-$1,121 million, up 16%-17% year-over-year. The company’s non-GAAP operating income is expected to be $157 million to $167 million. Further, Smartsheet expects non-GAAP net income per share of $1.22-$1.29, and ARR year-over-year growth is projected to be 14%-14.5%.

Moreover, in April, SMAR’s Board of Directors authorized the repurchase of up to $150 million of its outstanding Class A common stock through open market purchases and block trades. This strategic move implies the company’s confidence in its financial stability and long-term growth prospects, as well as its commitment to returning value to shareholders.

SMAR’s stock has soared 14% over the past month to close the last trading session at $44.27.

Here’s what could influence SMAR’s performance in the upcoming months:

Positive Recent Developments

On May 14, SMAR announced the availability of new AI and resource management features in the Smartsheet platform. These new AI tools provide enterprises with actionable analysis, insights, and enhanced visibility. Enterprise plan customers can analyze data through conversational prompts, generate formulas to drive processes and automation in Smartsheet, and more.

On February 29, SMAR released two new workload tracking features, Workload Heatmap and Workload Schedule, to greatly enhance team performance and streamline project execution. The new features in Smartsheet allow managers to understand better who is working on what, identify and address over-allocations, and make informed staffing decisions.

On February 6, Smartsheet continued its expansion through a partner-first strategy by signing its first Japanese distributor agreement with SB C&S. Japan, a significant investor in IT spending, presents a substantial opportunity for SMAR. Japanese companies are embracing digital transformation (DX) solutions as they look for technology that can scale with them to boost productivity.

Smartsheet has responded by investing in localized operations in Japan, offering a platform designed to meet the high expectations of Japanese customers.

Solid Financials

SMAR’s total revenue increased 19.6% year-over-year to $262.98 million for the first quarter of 2025. Its non-GAAP operating income grew 84.6% from the prior year’s quarter to $42.09 million. In addition, the company’s non-GAAP net income came in at $44.36 million, or $0.32 per share, up 77.1% and 77.8% year-over-year, respectively.

Furthermore, Smartsheet’s free cash flow rose 45.8% from the year-ago value to $45.68 million. Its cash and cash equivalents stood at $333.50 million as of April 30, 2024, compared to $282.09 million as of January 31, 2024.

Impressive Historical Growth

Over the past three years, SMAR’s revenue has grown at a CAGR of 33.9%. Its tangible book value and total assets have improved at CAGRs of 10.6% and 13.4%, respectively, over the same timeframe. Additionally, the company’s levered free cash flow has increased at a CAGR of 50.1% over the same period.

Optimistic Analyst Expectations

Analysts expect SMAR’s revenue to increase 16.4% year-over-year to $274.25 million for the second quarter ending July 2024. The consensus earnings per share estimate of $0.29 for the ongoing quarter indicates an improvement of 83.7% year-over-year. Also, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

Moreover, the company’s revenue and EPS for the fiscal year (ending January 2025) are expected to grow 16.8% and 48.3% year-over-year to $1.12 billion and $1.26, respectively. For the fiscal year 2026, Street expects its revenue and EPS to increase 15.8% and 23% from the prior year to $1.30 billion and $1.55, respectively.

Accelerating Profitability

SMAR’s trailing-12-month gross profit margin of 80.54% is 62.5% higher than the industry average of 49.58%. Likewise, the stock’s trailing-12-month levered FCF margin of 28.30% is 180.8% higher than the industry average of 10.08%. Also, its trailing-12-month asset turnover ratio of 0.78x is 27.3% higher than the 0.62x industry average.

POWR Ratings Reflect Promise

SMAR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SMAR has an A grade for Growth and a B for Sentiment, in sync with its solid financial performance in the last reported quarter and favorable analyst estimates.

In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability.

SMAR is ranked #6 among the 18 stocks in the A-rated Software - SAAS industry.

Beyond what I have stated above, we have also given SMAR grades for Stability, Momentum, and Value. Get access to all the SAIC ratings here.

Bottom Line

SMAR’s revenue and EPS surpassed fiscal 2025 first-quarter analyst expectations. The company ended the quarter with $669.50 million in cash, cash equivalents, and short-term investments, indicating a solid liquidity position and providing the financial flexibility to invest in growth opportunities and pursue strategic initiatives.

Moreover, Smartsheet achieved a significant milestone, having 72 customers with an ARR of more than $1 million. SMAR’s stock is currently trading above the 50-day and 200-day moving averages of $38.96 and $41.83, respectively, indicating an uptrend.

Given robust financials, growing profitability, and a bright long-term growth outlook, it could be wise to invest in this stock.

How Does Smartsheet Inc. (SMAR) Stack Up Against Its Peers?

While SMAR has an overall POWR Rating of B, investors could also check out these other stocks within the Software - SAAS industry with A (Strong Buy) or B (Buy) ratings: DocuSign Inc. (DOCU), Informatica Inc. (INFA), and Vimeo Inc. (VMEO).

For exploring more A and B-rated software stocks, click here.

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SMAR shares rose $0.73 (+1.65%) in premarket trading Friday. Year-to-date, SMAR has declined -7.42%, versus a 12.84% rise in the benchmark S&P 500 index during the same period.

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About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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