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Cloud Stocks: Smartsheet Should Follow Atlassian’s Example

Posted on Tuesday, Sep 22nd 2020

Enterprise collaboration solution provider Smartsheet (NYSE: SMAR) continues to deliver strong topline growth amid the current conditions. The company recently acquired Brandfolder to accelerate its efforts to digitize enterprise workflows.

Smartsheet’s Financials

For the second quarter, Smartsheet’s revenues grew 41% to $91.2 million compared with the market’s forecast of $81.3 million and the company’s earlier estimates of $86-$87 million. Net loss was $0.06 per share, which was significantly better than the market’s estimated loss of $0.16 per share.

By segment, Subscription revenues grew 43% to $83.6 million, and Professional services revenue grew 20% to $7.6 million.

Among operating metrics, customers with annualized contract value (ACV) of $5,000 or higher increased 31% to 10,049. Customers with ACV of $50,000 or higher grew 78% to 1,131, and customers with ACV of $100,000 or higher soared 92% to 433. Its net dollar retention rate was 128% and average ACV per domain-based customer increased 40% to $4,156. Calculated Billings grew 22% to $97.3 million.

For the third quarter, Smartsheet expects revenues of $94-$95 million with non-GAAP net loss per share of $0.23-$0.22. The market was looking for Q3 revenues of $92.6 million with a loss of $0.14 per share. Smartsheet expects to end the year with revenues of $367-$373 million with a loss of $0.54-$0.49 per share. The market was looking for revenues of $364.5 million for the year with a net loss of $0.50 per share.

Smartsheet’s Acquisition

Last month, Smartsheet announced the acquisition of Denver-based Brandfolder for an estimated $155 million. Brandfolder is a leading digital asset management (DAM) services provider. It was set up in 2012 to provide a centralized platform that can organize, discover, control, distribute, and measure all forms of digital content. Besides supporting content management, it also helped users get insights and analysis on the discoverability and reusability of assets. Smartsheet will integrate Brandfolder’s DAM capabilities with its collaborative work management platform to create a dynamic solution that manages workflows around content and collaboration.

Prior to the acquisition, Brandfolder had raised $11 million in four funding rounds led by Telescope Partners, White Cedar Enterprises, Techstars, and Right Side Capital Management.

Smartsheet believes that simply digitizing or using cloud-based versions of traditional collaboration, workflow, and content management tools will not help organizations achieve higher efficiencies. A lack of integration between traditional apps results in loss of critical information within workflows, leading to missed opportunities and inefficiencies. By integrating Brandfolder, Smartsheet will focus on enabling enterprise-wide content workflows that will help organizations break down these silos and make better decisions faster.

Its stock is currently trading at $47.91 with a market capitalization of $5.7 billion. It climbed to a 52-week high of $60.80 in June this year. It had fallen to a low of $30.91 in September last year.

Smartsheet’s Missing PaaS Strategy

I think Smartsheet is missing out by not following an active PaaS strategy. It should look at others like Atlassian who have built a robust PaaS ecosystem that is mutually beneficial to both the ISVs and Atlassian.

Atlassian’s app marketplace boasts of over 4,000 apps that have helped bring $1 billion in lifetime sales for its developers. Its developer community has built more than 28,000 apps for their in-house teams and it sees more than 60% of its customers across Jira Software and Confluence use at least one Marketplace app. Atlassian also uses the marketplace to scout for companies that it can acquire. It has acquired numerous companies from its PaaS ecosystem in the recent past that have helped add value to its portfolio of offerings.

Atlassian’s stock is currently trading at $177.4 with a market cap of $44 billion.  It touched a 52-week high of $198.41 in July this year. It hit a 52-week low of $107 in October last year.

This segment is a part in the series : Cloud Stocks


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