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Why Smartsheet Stock Just Dropped 10%

By Rich Smith – Sep 8, 2021 at 11:05AM

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Smartsheet beat earnings in Q2 but still lost quite a bit of money.

What happened

Shares of Smartsheet (SMAR -3.64%), a provider of workflow automation software, had tumbled 10.6% by 9:40 a.m. EDT Wednesday despite reporting an earnings beat Tuesday night.  

Heading into its second-quarter 2022 earnings report, analysts had forecast the company would lose $0.13 per share (pro forma) on sales of only $125.5 million. As it turned out, Smartsheet lost only $0.05 per share, and its sales beat expectations, rising 44% year over year to $131.7 million.  

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

So what

CEO Mark Mader noted "the continued rapid adoption of our platform in new deals and expansion within existing customers," pointing out that subscription revenue growth (recurring revenue) was even a bit better than revenue growth overall, up 45%. Nevertheless, the company's losses swelled during the quarter, and that might be what is upsetting investors today.

When calculated according to generally accepted accounting principles, Smartsheet lost $0.35 per share in its fiscal second quarter, about 59% worse than in the year-ago quarter. That was in contrast to adjusted losses, which at $0.05 per share were actually a bit less than the $0.06 lost a year ago and much better than the losses Wall Street had forecast.

Now what

Smartsheet predicted slowing (but still speedy) revenue growth in the third quarter: up 39% or 40% to perhaps $139 million, but with continuing adjusted losses (and presumably GAAP losses as well) of between $0.10 and $0.12 per share.

For the full fiscal year 2022, Smartsheet anticipates revenue growth continuing to slow, up 37% to 38% over fiscal 2021, at between $530 million and $533 million. Pro forma losses for the year are expected to range from $0.36 to $0.44 per share. At the midpoint, that would be about a penny worse than Wall Street's projected $0.39 loss, although revenue looks likely to beat expectations of $514.1 million for the year.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Smartsheet. The Motley Fool has a disclosure policy.

Stocks Mentioned

Smartsheet Stock Quote
Smartsheet
SMAR
$36.52 (-3.64%) $-1.38

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