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Smartsheet (SMAR) to Report Q3 Earnings: What's in Store?

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Smartsheet Inc. (SMAR - Free Report) is set to report third-quarter fiscal 2019 results on Dec 3.

The cloud-based work management tool provider debuted on Apr 27, 2018 on New York Stock Exchange.

The company reported second-quarter fiscal 2019 loss of 8 cents per that was narrower than the Zacks Consensus Estimate of a loss of 14 cents.

Revenues of $42.4 million came ahead of the Zacks Consensus Estimate of $39 million, primarily driven by strong product portfolio and expanding customer base.

For the third quarter, Smartsheet expects revenues between $43.5 million and $44.5 million.

The Zacks Consensus Estimate for the quarter to be reported is pegged at a loss of 16 cents per share and the consensus mark for revenues is pegged at $44.1 million.

Let’s see how things are shaping up for the upcoming announcement.

Smartsheet Inc. Price and EPS Surprise

Factors Likely to Influence Q3 Results

In the last reported quarter, Smartsheet recorded dollar based net retention rate of 131%, primarily driven by its portfolio strength. Management stated that it expects net retention rate to be above 126% for the second half of the fiscal year. This continued momentum is expected to boost the top line in the to-be reported quarter.

The company also witnessed a 55% year-over-year increase in billings, primarily driven by large number of enterprise renewals. However, the company expects billings to decline in the to-be reported quarter due to fewer large enterprise renewals.

Smartsheet continues to ramp up its efforts to expand its international presence in the to-be reported quarter, which accounted for 25% of the total revenues in the last reported quarter.

Smartsheet is among the four cloud service providers accepted into an accelerated program to receive certification from the federal government. Such certifications will provide the company with a plethora of opportunities and will make it more attractive to large enterprises in the near term.

In the last reported quarter, the company witnessed robust growth in large customers with 4,956 customers paying $5000 or more per year and 298 customers paying $50,000 or more per year, reflecting a year-over-year increase of 76% and 146%, respectively. Smartsheet is expected to attract large customers and boost growth on the back of its new products and investments in the to-be reported quarter.

However, being a relatively new company, its expenses are expected to increase substantially in the to-be reported quarter.  As percentage of revenues, research and development surged 31% and sales and marketing expense increased 54% year over year, in the last-reported quarter. The company expects expenses to increase in the to-be reported quarter, thereby hurting profits.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Smartsheet has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming releases:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +4.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caseys General Stores, Inc. (CASY - Free Report) has an Earnings ESP of +6.17% and a Zacks Rank #2.

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +2.26% and a Zacks Rank #3.

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