On Friday, Wolfe Research adjusted its outlook on Smartsheet Inc . (NYSE: NYSE:SMAR), decreasing the price target to $45 from the previous $65, yet reaffirming an Outperform rating.
The firm highlighted that despite Smartsheet facing macroeconomic challenges such as longer deal cycles, smaller deal sizes, and a drop in close rates, there is a positive stance on the company due to its improving profitability and go-to-market (GTM) execution.
Smartsheet's commitment to operational efficiency and margin expansion is seen as a positive move for investors, providing them with greater confidence in the stock's long-term value.
The company's recent financial performance has exceeded expectations on both the top and bottom lines, driven by strong enterprise customer engagement, growing recognition of the category's significance, and improved unit economics following an investment period.
The company's sustained profitability has led to expectations of further increases in non-GAAP EBIT and free cash flow (FCF) margins, beyond both Wolfe Research's estimates and the consensus. This could allow Smartsheet to experience a positive re-rating.
The firm will continue to monitor key growth drivers for the company, including its expanding enterprise traction, consistent margin leverage, cross-selling opportunities with Brandfolder/WorkApps & Capabilities, and growth in federal and international markets.
Wolfe Research also notes that while the market for Smartsheet's services is potentially large, with their estimate at $75 billion versus IDC's $23 billion, the presence of many high-growth competitors indicates a market with relatively low barriers to entry. This competitive landscape is an important consideration for the company's future performance.
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