What happened
Shares of workflow management software company Smartsheet (NYSE: SMAR) popped on Friday after the company released financial results for the second quarter of its fiscal 2023. The company also announced an acquisition. And as of 1:15 p.m. ET, Smartsheet stock was up 10%.
So what
In Q2, Smartsheet generated revenue of nearly $187 million, up 42% year over year and ahead of analyst expectations. On the bottom line, the company had an adjusted net loss of $0.10 per share, which was also better than Wall Street's estimates. Moreover, these results were also both ahead of guidance from Smartsheet's management, so everybody was pleasantly surprised with financial results.
Smartsheet also announced the acquisition of Outfit, a company that offers automation tools and templates to brands for creating marketing campaigns. Terms of the deal weren't disclosed, but Smartsheet says it will be funded via the cash on the balance sheet, of which there's $227 million. And Outfit will be folded into Smartsheet's Brandfolder platform.
Now what
In an odd twist today, the analyst community is overwhelming lowering price targets for Smartsheet stock, although these aren't necessarily downgrades since they're maintaining their ratings. For example, Jefferies analyst Brent Thill lowered his price target by 20% to $40 per share, even though he still thinks it's a stock to buy.
The reason Thill lowered his expectations for Smartsheet is related to its guidance for billings. Previously, Smartsheet was guiding for full-year billings of $910 million to $925 million. Now the company is guiding for billings of just $870 million to $880 million. While this is still 32% to 33% year-over-year growth, it does reflect uncertainty regarding business spend on software for the remainder of 2022.
Moreover, Smartsheet's billings growth is expected to be slower than its full-year revenue growth of 36% to 37%. Therefore, even though Q2 was good for Smartsheet, the disparity between revenue growth and billings growth could be an early warning for a future slowdown in the comnpany's growth.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group Inc. and Smartsheet. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
