Entering text into the input field will update the search result below

Smartsheet: Don't Be Surprised When Bubbles Burst

Jun. 05, 2020 10:28 AM ETSmartsheet Inc. (SMAR)4 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of Smartsheet fell more than 20% after the company reported horrendous Q1 results and dour FY21 guidance.
  • Of particular note is the fact that Smartsheet's billings growth has tapered off to just 30% y/y, though it had previously grown north of 50% y/y.
  • Previously, Smartsheet was one of the biggest winners in the software sector, as investors bet that its collaboration software would enable remote work trends.
  • Shares still look expensive at ~13.2x forward revenues, especially with cash flow deterioration from higher personnel costs.

This article was highlighted for PRO subscribers, Seeking Alpha's service for professional investors. Find out how you can get the best content on Seeking Alpha here.

Many investors lately have felt that the markets are getting a bit hot and over-anticipating the speed of the economic recovery, but some companies are running far hotter than others. Smartsheet (NYSE:SMAR), a mid-cap software company and recent IPO that focuses on work collaboration tools, is an example of a stock that has run far ahead of its fundamentals, and investors have finally realized that it was a bubble waiting to burst.

Investors piled heavily into Smartsheet this year on the bet that the transition to remote work would derive a bigger need for collaboration tools. At one point, shares were up ~30% year-to-date. Yet this turned out not to be the case, as Smartsheet's growth faltered significantly in its first quarterly earnings release since the coronavirus began to color its results. Shares plunged more than 20% in a single day, virtually wiping out all of the stock's year-to-date gains.

As I noted in my prior article, market volatility is not the right time to invest in overvalued, untested names. And even after this setback, Smartsheet shares still retain a huge valuation premium. At current prices near $46, Smartsheet still has a market cap of $5.43 billion. After we net off the $544.2 million of cash on Smartsheet's balance sheet, we're left with an enterprise value of $4.89 billion.

Smartsheet's guidance update, meanwhile, takes a lot of wind out of investors' prior enthusiasm for the stock. The company is now guiding to $360-$370 million in full-year revenues (+33-37% y/y), though Wall Street had hoped for $371.5 million (+38% y/y).

Figure 1. Smartsheet guidance updateSource: Smartsheet 1Q20 earnings deck

Against the midpoint

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (4)

06 Jun. 2020
Thanks so much for your analysis
06 Jun. 2020
what other richly valued companies may have a similar fate as SMAR?
One thing helping this bubble , analyst keep raising stock price targets
07 Jun. 2020
yep , Needham & Company LLC raised PT to $67 and Cannacord raises to $55, they must be deep underwater in their investments in SFIX.....
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.