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Smartsheet Investors’ Hasty Exit Can Be Your Gain

Smartsheet stock plummeted; view of Smartsheet in app form

Enterprise workflow collaboration and automation software maker Smartsheet Inc. (NASDAQ: SMAR) shares plummeted over (20%) due to its fiscal first quarter 2024 earnings report. While results were strong, the mixed forward guidance spooked investors as they frantically rushed out of the proverbial burning theater.

However, they may have been too hasty just looking at the surface numbers. The company continues to grow its high-end customers generating at least $100,000 in annual contract value (ACV) by 42%. The average ACV has grown 18% to $8,520. It has also expanded its artificial intelligence (AI) capabilities on its platform, which include intelligent assistant, project and portfolio intelligence, image manipulation and video and image caption generation. Competitors in the enterprise collaborative work management segment include Trello, owned by Atlassian Corp. (NASDAQ: TEAM), Asana Inc. (NASDAQ: ASAN) and Slack, owned by Salesforce Inc. (NYSE: CRM).

Enterprise Customer Growth

The simplicity of being able to manage projects, workflows and automate functions on a single platform: It's why this 90% of the Fortune 100 companies, including Boeing Co. (NYSE: BA), Microsoft Co. (NASDAQ: MSFT), International Business Machines Co. (NYSE: IBM), Proctor & Gamble Co. (NYSE: PG), Pfizer Inc. (NYSE: PFE), Netflix Inc. (NASDAQ: NFLX), Adobe Inc. (NASDAQ: ADBE) and Intel (NASDAQ: INTC), use this platform.

The company saw new customer wins, including Liberty Media, Hostess Brands Inc. (NASDAQ: TWNK) and 811 Group. Enterprise expansions included Motorola Solutions, Eli Lilly & Co. (NYSE: LLY), Foxtel and Novocure.

Churning Out Profits

Smartsheet hit profitability in its fiscal Q4 2023 and grew profits again in fiscal Q1 2024, as evidenced by its earnings release on June 7. Smartsheet released its fiscal Q1 2024 results for the quarter ending in April. The company reported a non-GAAP earnings-per-share (EPS) profit of 18 cents, excluding non-recurring items, versus consensus analyst estimates for eight cents, a 10-cent beat.

GAAP net loss was $29.9 million compared to $70.5 million in the year-ago period. Non-GAAP net income was $25 million compared to $23.7 million in the year-ago period. Revenues grew 31% year-over-year (YoY) to $219.89 million, beating $214.12 million consensus analyst estimates. Operating cash flow was $34.6 million and free cash flow $31.3 million. At the quarter's end, annual recurring revenues were $886 million with 12.8 million users.

Billing and ACV Growth

Calculated billings grew 20% YoY to $215.5 million. Dollar-based net retention was 123%. Annual contract value (ACV) of $100,000 or more grew 42% YoY to 1,569. The number of customers with at least $50,000 ACV grew 33% to 3,343. The average ACV per domain-based customer rose 18% YoY to $8,520. Smartsheet enabled Control Center to support multiple thousands of projects and is on course to be able to support multiple tens of thousands of projects per Control Center by the end of fiscal 2024. The company generated non-GAAP operating margins of 10%. Smartsheet launched its free plan worldwide in Q1.

Mixed Guidance

Just as in the previous quarter, Smartsheet provided mixed guidance but got a different reaction with the 20% haircut in stock price. The company issued in-line guidance for fiscal Q2 2024 EPS of seven cents versus eight cents versus seven cents consensus analyst estimates on revenues of $228 million to $231 million.

Smartsheet raised fiscal full-year 2024 EPS of 37 cents to 44 cents versus 35 cents consensus analyst estimates, up from previous guidance of 31 cents to 38 cents. It reaffirmed full-year revenues of $943 million to $948 million versus $945.96 million consensus estimates. It reaffirms fiscal full-year 2024 calculated billing of 20% YoY growth.

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Weekly Ascending Triangle Breakdown

The weekly candlestick on SMAR attempted an ascending triangle breakout heading into Q1 2024 earnings but collapsed on the mixed guidance. The weekly ascending triangle formed after bouncing off its $25.09 swing low in November 2023.

Shares continued to rise until peaking at the flat-top triangle trendline of $48.99. It tested that area three times before failing. The most recent attempt was just before its earnings release as shares coiled higher on a weekly market structure low (MSL) breakout through the $42.24 trigger spiking shares up through the triangle flat-top resistance to peak at $52.81 on the eve of its Q1 2024 earnings report. Shares plummeted after the release as investors made a hasty exit on fears of a slowdown. SMAR fell to test and bounce off the weekly 50-period moving average (MA) at $38.63 to reject the weekly 20-period EMA at $42.96 and retest the weekly MSL trigger. Pullback support levels are $40.80, $39.20, $38.25 and $37.09.         

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