Shares of Smartsheet jumped about 17% in Tuesday’s pre-market session after the software company forecasted 4Q revenues that topped the Street’s estimates. Meanwhile, the company’s 3Q results came in better than analysts had expected.
Smartsheet (SMAR) reported a third-quarter loss of $0.12, smaller than analysts’ estimates of a loss of $0.21 and compared to a loss of $0.15 in the year-ago period. 3Q revenues increased 38% to $98.9 million, beating the Street consensus of $94.6 million. Subscription sales grew 41% to $90.9 million, while professional services revenue increased 12% to $8 million.
The company’s CEO Mark Mader said, “Our third quarter was highlighted by continued strength with large deals, a new high water mark for our Government business.”
Smartsheet’s CFO Jennifer Ceran added, “We completed our transition to the public cloud during the quarter.” Ceran further said, “As a result of the wind down costs related to our legacy data centers, we saw a drop in our gross margin this quarter. We expect our gross margin to rebound in the fourth quarter with the exit from our data center infrastructure now complete.”
Concurrent with the earnings release, the company named Pete Godbole as its new CFO, replacing Ceran, who will continue to remain with the company in the near term for smooth transition.
As for 4Q, the company expects revenues to generate between $102 million to $103 million, exceeding the consensus estimates of $99.5 million. Further, Smartsheet anticipates its 4Q loss to be in the range of $0.13 to $0.15 per share, compared to analysts’ expectations of a loss of $0.13. (See SMAR stock analysis on TipRanks)
Following the results, Needham analyst Scott Berg raised the stock’s price target to $80 (28.1% upside potential) from $67 and maintained a Buy rating. Berg said that “Commentary on the strength of returning demand trends, specifically in the company’s enterprise segment, suggest 4Q billings could accelerate further. Demand across the SMAR portfolio appeared to be broad-based given the mix commentary on capability solutions, which we view as an incremental sign of healthy demand trends.” He added that, “the company should be viewed as a mid-30% growth company in FY22.”
Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 6 Buys and 1 Hold. The average price target stands at $78.50 and implies upside potential of about 25.7% to current levels. Shares were up by about 39.1% year-to-date.
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