Smartsheet

SMAR · NYSE

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The case for and against

Updated Jan 18, 2025

Bull case

Smartsheet's financial outlook is strengthened by a significant increase in subscription revenue, which rose 17.7% year-over-year, contributing to a total revenue increase of 16.7%, driven by enterprise strength. The company demonstrated substantial improvement in free cash flow, which surged by $50.5 million Year-over-Year, reaching $61.9 million and reflecting a robust margin of 21.6%. With expectations of durable revenue growth exceeding 30% for the next three years as Smartsheet approaches $1 billion in revenue, there are strong fundamentals supporting a positive outlook for the stock.

Bear case

Smartsheet has experienced a decline in net bookings, with a 19% year-over-year decrease in F4Q24 and F1Q25, followed by an 11% decline in F2Q25, indicating weakening demand for its subscription services. In addition, the company's gross margin fell short of expectations, compressing by 50 basis points year-over-year to 83.2%, resulting in a gross profit slightly below estimates. Furthermore, with the company trading at a discount to similar growth peers amidst declining revenue multiples, there are concerns that customer retention may suffer if Smartsheet loses competitive positioning or faces operational challenges.

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