On Friday, Citi adjusted its outlook on Smartsheet Inc . (NYSE:SMAR), reducing the price target to $50 from the previous $63, while sustaining a Buy rating for the company's stock. The revision follows Smartsheet's fourth-quarter financial results, which presented a mix of outcomes, including a slight revenue and billings outperformance but a significant beat on profitability metrics.
Smartsheet, known for its collaborative work management solutions, reported revenue and billings that marginally exceeded expectations by $2 million and $1 million, respectively.
However, the company's earnings before interest and taxes (EBIT) and free cash flow (FCF) significantly surpassed forecasts by $17 million and $14 million. Despite these positive profitability indicators, the company's growth outlook for fiscal year 2025 appears dimmer, with revenue growth projections adjusted to 16.4% year-over-year, a deceleration from the consensus estimates of 19% to 20%.
The analyst from Citi noted that the small and medium-sized business (SMB) macroeconomic environment continues to worsen, which has led to a downward adjustment in future growth expectations. The annual recurring revenue (ARR) is now anticipated to grow by 14%, marking a 7 percentage point deceleration.
Additionally, Smartsheet announced the appointment of a new go-to-market leader, raising questions about the company's growth trajectory, especially as the net revenue retention (NRR) trends are expected to contract further compared to other collaborative work management (CWM) vendors that are predicting a stabilization.
Despite these challenges, Citi maintains a positive stance on Smartsheet, citing the company's increasing free cash flow and an attractive valuation. The current valuation, particularly after the market's closing hours, is deemed compelling at 22 times the next twelve months' enterprise value to free cash flow (NTM EV/FCF) guide.
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