What happened
Shares of work management software company Smartsheet (SMAR -1.66%) dropped on Thursday after the company provided its latest quarterly financial report. As of 10:50 a.m. ET, Smartsheet stock was down a whopping 21%.
So what
After the market closed yesterday, Smartsheet reported results for its fiscal first quarter of 2024 and the market's negative reaction is admittedly confusing on the surface. The company grew revenue 31% year over year to almost $220 million, ahead of expectations. And while Wall Street had expected it to earn an adjusted profit, its adjusted diluted earnings per share (EPS) of $0.18 were a whole dime above what analysts thought it would report.
It's possible that the market is reacting to Smartsheet's guidance. Consider that the company's Q1 revenue of $220 million was $5 million more than the high end of management's previous guidance. However, management only maintained its full-year revenue guidance instead of raising it by at least $5 million.
In other words, management is saying Q1 pulled future revenue forward. Business isn't better than expected and that may be what worries the market. And worries were already elevated going into the Q1 report considering Smartsheet stock was trading at a 52-week high.
Now what
I believe the market is simply taking some gains off of the table today with Smartsheet stock. I don't believe anything is too troubling. One thing to keep in mind is that Q1 billings growth of 20% significantly trailed 33% growth in subscription revenue -- for a company like this, investors ideally would like to see billings growth above subscription revenue growth because it signals stronger prospects.
That said, Smartsheet did raise its full-year guidance for adjusted profitability. The company expects to report full-year adjusted operating income of $43 million to $53 million compared with previous guidance of $35 million to $45 million.
In conclusion, growth is good for Smartsheet and profits are improving. Those are good things and might make this a stock worthy of further research in light of today's big drop.
