Smartsheet (SMAR, Financial) recently reported its Q4 earnings, surpassing both EPS and revenue expectations similar to its competitor Asana (ASAN, Financial). However, the company's outlook for Q1 and the fiscal year 2025 didn't meet investor expectations, leading to a significant drop in its stock price. This reaction mirrors concerns about ongoing market challenges, as noted by Asana during its March 12 earnings call. Smartsheet's CFO, Pete Godbole, highlighted that the company is experiencing reduced spending, especially within the small and medium-sized business (SMB) segment, which has negatively impacted growth rates more severely than in the previous quarter.
Key points from Smartsheet's report include:
- Revenue growth fell to 21%, marking the slowest year-over-year growth since the company went public. The forecast for Q1 suggests a further deceleration to about 17% growth.
- The company anticipates continued pressure on its SMB segment throughout fiscal year 2025, leading to a lower revenue projection of $1.113-$1.118 billion.
- Despite these challenges, Smartsheet achieved a significant milestone by surpassing $1 billion in annual recurring revenue (ARR) in Q4, driven by strong demand from larger enterprise customers. The number of customers contributing more than $100K to ARR grew by 28% year-over-year.
- To adapt to its more mature growth phase, Smartsheet is refining its market strategy, including hiring Max Long, formerly of NetApp (NTAP, Financial), as President of a new go-to-market team. This team aims to capture additional market share through improved strategies and product innovations.
Despite the headwinds affecting its SMB customers, Smartsheet has shown resilience with a significant increase in EPS from $0.07 to $0.34 year-over-year and a near tripling of operating cash flow. However, the company's cautious revenue guidance has overshadowed these achievements, reflecting the broader impact of higher interest rates and macro/geopolitical uncertainties on its growth trajectory.
