✅ Can Asana Complete Its Tasks?

Peloton co-founders to leave the company.


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Asana: Task Cut Out?

Collaboration software firm Asana’s (ASAN) shares are back above their reference price. The company reported strong revenue growth and increased guidance for the year. Its CEO poured more of his own money into the company. Will the positives finally outweigh the concerns?

Underpromise & Overdeliver

Asana operates a work management platform for individuals and teams across 200 countries. 80% of the Fortune 100 companies are its clients, and it caters to industries like technology, retail, healthcare, and education.

Teams use the platform for various activities, from daily tasks to strategic initiatives and even setting goals across the organization. It positions itself as a “freemium” service, where one can use the most basic tools for free but pay for the advanced features.

A SaaS business like Asana has high retention rates after onboarding a customer. Once that’s done, the company upsells existing customers by adding more seats and cross-sells new products, features, and high-tier plans.

Among Asana’s peers within the work management industry include the much larger Atlassian and monday.com. The company went public in September 2020 through a direct listing. At one point, shares jumped as much as 450% before peaking in November 2021. Since then, the stock has dropped 90%, falling below its reference price of $21 and languishing in that range.

Analysts believe that Asana has a track record of underpromising and overdelivering. The quarter gone by has been no exception as the company surpassed estimates on all fronts.

Key Highlights from Q2 FY23:

  • Revenue: $134.9M Vs $127.2M expected
  • Loss Per Share: $0.34 Vs $0.39 expected
  • Customers spending $50K a year – up 91% year-on-year
  • Customers spending $100K a year – up 105% year-on-year

Asana’s revenue increased 53% from last year in Constant Currency Terms. The number of paying customers at the end of Q2 increased 22% to 131K. CEO Dustin Moskovitz attributed the earnings beat to large enterprise deals and momentum in the US, as evident from the growth in the number of customers spending $50K and $100K annually.

Task Manager’s Task Cut Out

Asana’s dollar-based net retention rate has remained healthy over the last few quarters and is a key positive for its earnings performance. Here’s the company’s dollar-based net retention rate across categories:

  • For the overall business: 120%
  • For customers with $5K or more in annualized spending: 130%
  • For customers with $50K or more in annualized spending: 145%

The company defines its dollar-based net retention rate by comparing revenue from the same set of customers in a quarter and comparing it with the year-ago period. Asana’s strong retention rate was positive in challenging macroeconomic conditions.

What also impressed investors is the company’s guidance for the current quarter:

  • Q3 revenue guidance: $138.5M-$139.5M Vs $137.8M expected
  • Full-year revenue guidance: $544M – $547M Vs $536M – $540M earlier

CEO Dustin Moskovitz continues to bet on the company as he sees an “enormous market opportunity” and that Asana’s Work Graph is the best way for companies to achieve their most important goals.

Moskovitz also continues to invest his own money in the company, accumulating shares since June last year. By March 2022, he owned 21% of Asana’s Class A shares. This time, he acquired another 19.3M Class A shares for $350M. Post this allotment, Moskovitz owns nearly a third of the company.

The fund infusion has also improved Asana’s cash balance to $585M from just under $150M in July, which would not have sufficed until the business turned profitable. CFO Tim Wan expects the company to achieve positive free cash flow by the end of 2024.

Asana’s internals paints a different picture. The strong revenue growth has not translated into the company’s bottom line. Despite the 50% revenue growth in Q2, the company’s net loss widened to $113M from $68.4M year-on-year. Operating margins have worsened in each quarter since Q1 FY22. Sales and Marketing spending at 82% of revenue indicates a poor return on every dollar invested.

R&D spending continues to hover between 52-58%, indicating that it faces pressure from its rivals and constantly needs to innovate to maintain its position. Asana’s stock-based compensations have also increased from 15% of overall revenue in Q3 2021 to 36% of revenue by Q2 FY23.

Analysts believe Asana is succeeding in challenging macros as enterprise work needs managing regardless of economic conditions, which have otherwise affected software sales. They also hailed Moskovitz’s investment in the company, saying that investors appreciate such confidence; and appreciate they did as Asana’s shares gained 16% on Monday, adding to Friday’s 20% surge.

After a topsy-turvy 2021, Asana is looking to set things straight. The top line is growing, and the cash is in place. All it now has to do is turn profitable or highlight a clear roadmap for the same. The sooner it manages to do that, the faster it can mark this task as “completed!”

Market Reaction
ASAN ended at $28.71, up 16.42%.

 

Company Snapshot 📈

ASAN $28.71 +4.05 (+16.42%)

Analyst Ratings (13 Analysts) BUY 54%  HOLD 31%  SELL 15%


Newsworthy 📰

  • Boardroom Drama: Peloton co-founders John Foley and Hisao Kushi are leaving the company in a broad executive shakeup (PTON +7.18%)
  • Awaited: Starbucks to unveil reinvention strategy at its investor day today (SBUX +0.30%) (Premarket)
  • Silver Lining?: Oracle sales top expectations as cloud businesses thrive (ORCL +1.84%) (Premarket)

Later Today 🕒

  • Aspen Group Inc. Earnings (ASPU)
  • Core & Main Inc. Earnings (CNM)
  • 6:00 PM IST: Consumer Price Index
  • 11:30 PM IST: Federal Budget

Today’s Fun Fact

The average person uses 13 different methods to control and manage their time.


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