What happened

Shares of Smartsheet (NYSE:SMAR) jumped on Tuesday after the cloud collaboration software provider reported its first-quarter results. Smartsheet beat analyst estimates for both revenue and earnings, and it provided guidance that was ahead of expectations. The stock was up about 13.9% at 12:30 p.m. EDT.

So what

Smartsheet reported first-quarter revenue of $36.3 million, up 63% year over year and about $3.2 million higher than the average analyst estimate. Subscription revenue totaled $32.1 million, up 57% year over year, while professional services revenue rose 129% to $4.3 million. The company ended the quarter with over 75,000 customers.

A rising stock chart

Image source: Getty Images.

Non-GAAP (generally accepted accounting principles) earnings per share came in at a loss of $0.12, down from a loss of $0.08 in the prior-year period but $0.06 better than analysts were expecting. That translates into a net loss of $11.0 million. GAAP operating expenses soared 69% year over year, with research and development spending nearly doubling.

Looking ahead, Smartsheet expects second-quarter revenue between $38.5 million and $39.5 million, along with a non-GAAP loss per share between $0.13 and $0.14. For the full year, the company expects revenue between $159 million and $162 million, and a non-GAAP loss per share between $0.56 and $0.59. Those ranges are mostly higher than analysts were expecting.

Now what

Following Tuesday's rally, Smartsheet is valued at roughly $3 billion, using the weighted diluted share count expected for the full fiscal year. That puts the price-to-sales ratio at the midpoint of the company's revenue guidance range at just about 19. There's a lot of optimism baked into the stock price.

Smartsheet expects its revenue growth rate to slow to between 43% and 46% this year, along with significant losses and a negative free cash flow of up to $25 million. While the market is pushing up the stock on a better-than-expected first quarter, I'm not convinced the valuation makes any sense at all.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.