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Takeaway: A good tool but narrower adoption factors and over-monetization of existing base

Editor's Note: Our Technology analyst Ami Joseph is hosting a call Monday November 4th at 12:30am ET to review our short thesis on Smartsheet (SMAR). If you are an institutional investor interested in accessing this call or related materials email sales@hedgeye.com.

Short Smartsheet | Call Invite | Classic Over-Monetization Set-Up | $SMAR - 11.20.2018 tech crash test dummy cartoon

    We are adding Smartsheet (SMAR), the $4.7B software provider of a tool for collaborative work management, to Best Ideas Short with 30-40% downside risk. For the most part, we like the Smartsheet product itself, but we see a much narrower adoption curve than what we had expected which we think points to a narrower applicability within the enterprise, and ultimately a smaller landing spot for TAM in the tool’s current form.

    We think the CEO is admirable – just like you do. For many years, he has stuck to a finding and trying to solve the pain point in this market. But our discovery points to an adoption curve much slower than revenue or billings growth, and well below high growth / higher multiple productivity suite peers.

    With rising competition for automated workflows (& the rest of the product's features), some mixed elements from the CFO on numbers, and a capital raise basically designated for M&A to boost revenue and billings growth in the coming years, we think Smartsheet’s current and future underlying and sustaining growth rate is well below what is currently reflected in revenue growth, and the current cost headwinds to cloud and marketing spend will push relevant profits and cash flows further out into the distance.

    Join us Monday November 4 at 12:30PM as we walk through the deep dive. As usual, and specifically for a company that has sustained >50% revenue growth for the last few years, there’s plenty of good stuff that we have found, all of which we will lay out during the call.