What happened

Shares of Smartsheet (NYSE:SMAR) gained 20.4% last month, according to data provided by S&P Global Market Intelligence.

In the year or so since its initial public offering in December 2018, investors have been generally bullish about the software-as-a-service company's long-term growth prospects. The stock is currently up 127% since the IPO. The bounce last month could be attributed to nothing more than a rebound in the shares after their dip during the prior two.

Investors were obviously anticipating a strong third-quarter report, which is for the most part what they got when Smartsheet announced better-than-expected earnings on Wednesday.

SMAR Chart

SMAR data by YCharts 

So what

Here are the highlights of Smartsheet's third quarter: 

  • Revenue rose 53% year over year to $71.5 million, driven by strong growth in subscription revenue and professional services.
  • It posted a non-GAAP (adjusted) net loss of $17.7 million, worse than the $9.4 million net loss in the year-ago quarter.
  • Adjusted earnings per share came in at a loss of $0.15, which was $0.03 per share better than analysts' estimates.

The workplace collaboration software specialist continued to win the business of large corporate clients, including U.S. Bank, Krispy Kreme Doughnuts, and Rackspace. 

Also, in November, Smartsheet was recognized in this year's Microsoft 365 awards for offering the "Most Business or Consumer Value" with its services. It has been a partner of Microsoft Teams, a workplace collaboration tool. Smartsheet also announced a new extension feature for Adobe Creative Cloud. 

A team of employees collaborate in a conference room.

Image source: Getty Images.

Now what

Management said it expects the company's growth momentum will continue into the fourth quarter and next year. Revenue is expected to increase by 48% to 50% in the fourth quarter, and for 2020, revenue is expected to climb about 52% to a range of $269.4 million to $270.4 million. 

Profitability is being held back by sales and marketing expenses, which remain the company's largest category of expenditures. However, management expects the percentage of revenue devoted to marketing to come down in the fourth quarter. The company forecasts an adjusted net loss per share of $0.16 to $0.17 for the fourth quarter, and a net loss per share of $0.53 to $0.52 in 2020. 

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