SMAR Earnings Preview- M&A rumors continue to swirl
2min read Smartsheet (SMAR) shares surged to a 52-week high of $51.42 following a Reuters report that private equity firms Vista Equity and Blackstone are in discussions to potentially acquire the company. This news reignited M&A speculation that first surfaced in July, sending SMAR stock higher before it slid back later in the session. The company, valued at $6.6 billion, has reportedly tapped investment bankers from Qatalyst Partners to explore buyout offers but has not yet committed to a sale process. The possibility of Smartsheet remaining independent remains on the table.
Analysts at Wells Fargo believe that Smartsheet’s strong 20% growth and free cash flow margin make it an attractive acquisition target for both private equity and strategic buyers, noting that Adobe’s successful acquisition of competitor Workfront in 2020 suggests that Smartsheet could fit well with larger platform vendors. Morgan Stanley tabbed SMAR as a top M&A candidate back in July.
The M&A rumors follow a period of strong momentum for SMAR, particularly after its competitor Monday.com delivered an impressive earnings report on August 12. Smartsheet’s software, which targets large corporate clients like Pfizer, Cisco, and American Airlines, distinguishes itself by offering more advanced features than Microsoft Excel, making it a favorite for complex operations. Serving 85% of Fortune 500 companies, Smartsheet has established itself as a major player in the work management platform space, competing against firms like Asana and Monday.com, which primarily cater to smaller businesses.
The news comes ahead of its earnings report. SMAR is set to report earnings after the close, with analysts projecting EPS of $0.29 on revenue of $274 million. Following a strong Q1 performance and a 20% outperformance over the past three months, driven by M&A speculation, the focus for Q2 will be on the company's recent pricing changes, which began in June. Investors will be particularly interested in updates on pricing impacts, trends in net new ARR, retention rates, and large enterprise deals worth over $1 million.
Citi analysts have adjusted their estimates for SMAR’s billings, lowering expectations for Q2 by approximately $8 million to $282 million and for FY25 by $4 million to $1.218 billion. Despite this, SMAR remains an attractive acquisition target with enterprise momentum, leading Wells Fargo to raise its price target to $60 from $50. Investors will be watching closely for updates on SMAR's performance and its outlook for the rest of the year.
Smartsheet delivered strong Q1 results, exceeding expectations despite a cautious demand environment in the broader enterprise software space. While the SMB segment remained soft due to tighter domestic spending, SMAR's large account business, particularly its $1 million+ ARR customer group, grew significantly by 50% year-over-year. Total ARR increased 19% to $1.056 billion, and the company's dollar-based net retention rate reached an impressive 114%. SMAR's confident outlook for Q2 and FY25 was underscored by the announcement of a new $150 million share repurchase program, highlighting the company's belief in its growth potential.
In addition to its earnings results, SMAR introduced a new pricing and packaging model, which it expects will be accretive in both the near and long term by providing more licenses at lower prices per user for business and enterprise plans. The company's AI capabilities, particularly the adoption of Smartsheet AI, have also been a key growth driver, with nearly half of SMAR's enterprise customers using the AI tool since its February launch. These factors, combined with upbeat guidance and a strong focus on AI innovation, position SMAR as a standout in the enterprise software market amid broader economic challenges.