Smartsheet (SMAR) trades at a valuation discount to its SaaS peers. While the collaborative work management software provider has seen a slowdown in its high-velocity transactional business due to a pullback in spending, it’s still growing at a solid pace thanks to an expanding enterprise presence.
With Smartsheet shares recently trading around $41 (down from a 52-week high of $52.81), the company’s enterprise value is 5.2 times the FY’24 (Jan.) consensus revenue estimate of $952.2 million and just 4.3x the FY’25 consensus of $1.15 billion. Analysts on average look for Smartsheet to deliver top-line growth of 24% in the current fiscal year and 20.6% growth next year. In comparison, the median forward multiple for SaaS companies with growth rates in the 15% to 30% range now stands at 8.3x, according to Altimeter Capital.
Smartsheet’s work management solutions are used for multiple purposes across many different verticals—including manufacturing, healthcare, finance and retail. The company has more than 13.4 million users on the platform. While many individuals and small teams are on a free version of the platform, Smartsheet as of FQ2 (July) had 19,031 customers with annual contract value (ACV) of $5k or more, up 14% year over year.
At the upper end, Smartsheet counts more than 9,400 enterprise customers (with greater than 2,000 employees) that account for over half of total annual recurring revenue (ARR). These larger organizations continue to expand their commitments to Smartsheet in the form of more seats and the purchase of Capabilities products, which are premium add-ons (such as Data Shuttle for the transfer of data across multiple systems) that account for 32% of total subscription revenue.
The various Capabilities solutions (including Control Center for managing work across hundreds of projects and workflows) continue to be a core differentiating factor in the company’s success in the enterprise, according to Smartsheet CEO Mark Mader. In FQ2, Capabilities were included in all of the 10 largest expansion deals. Smartsheet Advance, a bundle of different Capabilities, had a terrific July quarter, with 216 deals closed, a jump of 50% from the year-ago quarter.
One of the biggest FQ2 transactions that included Advance was a 7-figure deal with a large consulting firm that’s using Smartsheet to streamline client engagement and automate a variety of processes. This customer is deploying Data Shuttle to pull in information from disparate data sources to quickly create reports. Another 7-figure deal was an expansion with a global retailer that’s using Smartsheet to manage strategic planning in the fulfillment center.
The Capabilities offerings will remain a key growth driver going forward. They’re a big help in terms of boosting deal sizes. In FQ2, 75 customers expanded their Smartsheet commitments by more than $100k and 232 expanded by greater than $50k. The number of customers with ACV of $50k or more (representing 64% of total ARR) rose 30% to 3,552, while the number of customers with ACV of $100k or more (50% of total ARR) gained 36% to 1,665.
Smartsheet is in the process of enhancing its enterprise-focused products with a set of new generative AI features. While the company will provide a basic AI assistant and solution builder to all of its customers, it will monetize its most advanced generative AI features (covering analytics, content generation and formula building) by only making them available to paid users on enterprise plans, a smart go-to-market strategy that should power more upgrades.
In FQ2, Smartsheet’s total revenue rose 26% to $235.6 million, 2.6% above the consensus. Billings gained 18% to $243.1 million, topping the guide of $228.4 million. Total ARR of $933 million was up 27%. Smartsheet in FQ2 added $47 million of new ARR, up from $32 million added in the prior quarter. Gross margin was healthy at 83%. Per-share earnings of 16 cents beat the consensus by nine cents. Free cash flow totaled $45.5 million (19% margin).
Smartsheet will report FQ3 (Oct.) results on December 7. For the October quarter, the company’s total revenue outlook of $240 million to $242 million represents 20.7% growth at the midpoint. Billings growth is expected to decelerate sequentially to 17%.
Smartsheet maintained its FY’24 billings growth forecast of 20%, implying that FQ4 billings growth would reaccelerate to 24%, which on the surface looks pretty challenging. However, the final quarter is normally a big one for enterprise deals. It helps that the FQ4 billings metric this year has an easier year-over-year comparison versus FQ3.