Smartsheets Q420

Investment Analysis Clubs Saul’s Investing Discussions
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I no longer own it after seeing margins continuing to worsen last few Qs, but I’m still keeping it on the watch list… mostly out of curiosity about how enterprise spend will be affected over next few Qs for ‘enterprise tooling’ SaaS like this, not because of its execution (where the trends are not good). I’m guessing that this kind of software isn’t as vital as security and communications tools are right now. Where Smartsheet’s value lies is in VISION that its dashboards bring (that is the driving reason I’m in Datadog, after all), however, Smartsheets’ vision is more over the business operational side, e.g. developer productivity and project mgmt. That ultimately seems more expendable then software that gives you eyes on your infrastructure, like DDOG. Right now I am only looking for companies whose tools are INVALUABLE. Enterprises are sure to start trimming expenses (likely quickly, and ruthlessly) in order to build up their fortress and weather this storm.

Side Tangent: Thank you to Saul for the quick peek at your current shift in positions. I see you are compacting your portfolio, and I’m beginning to do the same; I only plan on focusing on those stocks that are technologically attractive right now AND that have been executing near flawlessly already.

Given all that, Smartsheets seems like an easy choice to jettison if you still hold.

SMAR - Q420

PR: https://investors.smartsheet.com/press-releases/press-releas…
SSI take: https://softwarestackinvesting.com/smartsheet-smar-q4-2020-e…
Bear sold: https://discussion.fool.com/smar-q4-34441630.aspx
Lieberman sold: https://discussion.fool.com/i-sold-as-well-sold-most-my-shares-a…
CC transcript: https://www.fool.com/premium/coverage/earnings/call-transcri…

Revenue 78.5M +51%

  • Sub Rev 71.1M +53%
    Billings 101.5M +58%
    Adj Op Loss 17.3M (was -8.5M)
    … margin -22.0% (vs -16.4%)
    CFFO -42k
    FCF -3.6M
    … margin -4.6% (vs +1.3%)
    Custs

  • 5K 9070 +47%

  • 50K 961 +116%

  • 100K 350 +138%
    ACV 3643 +48%
    Custs 84k
    $NER 135% !!

My stance: I sold out of my small position after last Q, since margins are moving the wrong way, and growth is back to trickling down after a brief rise. Right now it all boils down to: how sticky is this company’s products? We’re about to find out over the next few Q! I am keeping this in my watch pile til then, but I’m expecting the continually lowering growth rates to finally hit 50%. Curtailed enterprise spend is likely to impact new deals, so possibly (and, IMHO, probably) even lower.

-muji

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thanks for your insight Muji.

Most of your points resonate with me… specially criticality of product…

On your point about margin, I did not find tangible change in gross margins or FCF over last few quarters…

Management has clearly said that they are investing for growth and thats why built up dry powder… so no surprise that FCF hovers around -10%…but thats not new, thats just how they run this company for now… to get ~50% CAGR on topline…

In fact that billings and customer count with $50K+ ACV increased a little bit and all other metrics show solid ~50% growth y/y.

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Doh. My apologies on the SMAR report, I got some back-to-back posts from Bear mixed up, and included links to posts from Bear & Flieberman selling MDB intermixed with SMAR.

Bear still owns it, and loved the Q…
https://discussion.fool.com/smar-q4-34441630.aspx

In particular he highlighted how big customers are getting bigger, as high spend customer tranches are increasing >100% the past few Qs. ACV is +48%, $NER is consistently over 130% and slightly rising (134% +100bps).

It’s a solid company, with an ever so slight downward trend in top line growth.
Q419 +58%
Q120 +55%
Q220 +53%
Q320 +53%
Q420 +51% -700bps

Int’l is only ~ low 20%s … so lots more room to run there, but I cannot see that growing right now in the middle of a global pandemic.

I personally am not that excited to own business productivity tools right now. But as I mentioned, I AM following how this otherwise excellent grower will perform over the next few Qs.

Bear, I assume you still hold here, what’s your forward view on SMAR compared to your other holdings?

-muji

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Bear, I assume you still hold here, what’s your forward view on SMAR compared to your other holdings?

While this is a mid-sized holding for me, not a large holding, I like it quite a bit. They’re maintaining very good growth rates and continuing to invest for growth. I could see them benefiting from the work-from-home environment as they are a collaboration tool like TEAM and WORK.

At $31 or $32 I was adding, but at their current level I’m happy with my mid-sized position. I would be willing to go a little bigger given the right opportunity, but it won’t rival AYX.

Bear

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