Despite Macro Challenges and Concerns over Second-Half Billings, Smartsheet Gains Analyst Confidence with Solid Free Cash Flow

Oppenheimer analyst George Iwanyc reiterates Smartsheet Inc SMAR with a Outperform and a $55 price target.

Smartsheet delivered better than expected 1Q FY24 results, including a solid free cash flow of $31.3 million. 

However, management remains cautious concerning macro pressures and lengthening deal cycles, providing unchanged FY24 revenue and billing guidance that could disappoint investors. 

The analyst is comfortable with management's execution and ability to navigate the macro challenges and still meet and beat guidance. 

Longer term, he remains optimistic, seeing significant room for enterprise expansion given the low penetration of Smartsheet Advance and premium capabilities (accounting for ~33% of subscription revenue) and growing leverage from upcoming self-discovery options. 

Generative AI is also a critical enabler added to the platform. The analyst sees a multi-year runway for further adoption across more customers.

Needham analyst Scott Berg reiterates a Buy rating on the stock with a price target of $57.

SMAR reported revenue upside and much better profitability than expected in 1Q, but weakening down-market sales drove several million dollar billings misses versus buy-side expectations. 

He believes investors are more concerned (given the stock is down nearly 20% AMC) about weak relative 2Q billings guidance (~11% versus 20% in 1Q) and increased risk to second-half billings, which imply a steep jump versus 2Q. 

However, within the shifting billings assumptions is a well-known software trend of vendors with increasing Enterprise exposure becoming even more seasonal second-half, which management called out on the call.

The session volume surged to 7.9 million versus the 100-day average of 1.3 million.

Price Action: SMAR shares traded lower by 19.50% at $39.44 on the last check Thursday.