📋 Is Asana Bent Out Of Shape?

Starbucks launches EV charging pilot.

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📋 Asana: Bent Out Of Shape?

Web and mobile work management platform Asana Inc. (ASAN) is following a similar pattern of growth stocks this year. Even after posting Q4 results above estimates, shares tanked last Thursday to hover right around its IPO price. What gives? (Tweet This)

Up-Dog To Down-Dog?

Asana went public in September 2020. Within a year, shares shot up 5X. From Peloton to Asana, shares of companies that had some kind of subscription model rallied as investors brushed aside valuation concerns and piled into growth stories. Asana still had more room to run, though, as it was up ~6X since the IPO three months later. That was on November 15 last year.

Then came the tech sell-off. Stocks that shot up over the past year fell like there was no tomorrow. With inflation on the rise and the Federal Reserve on the cusp of raising interest rates, investors dumped these growth stories as they sought “value” names. By mid-December, Asana shares had lost half their value.

Not only was the tech sell-off a reason, but Asana was also grappling with its own challenges. Although the company was retaining existing customers, it was facing challenges in increasing revenues from this group. That was evident from the slowing down of growth in billing.

The company tried to assuage those concerns by stating that billing was not the best metric to evaluate the business as only one-third of its customer base was being billed monthly.

And then there was the fear of being substituted. Asana’s largest customer, Amazon, was evaluating its rival Smartsheet for internal use. Still, to the company’s credit, Asana had topped revenue expectations in all four quarters since it went public.

Revenue growth was in excess of 57% or higher during that period. Be that as it may, the same accumulated losses that investors had ignored a couple of quarters ago suddenly became a reason to be concerned about. The perspective of profitability supplanted the perspective of growth.

Great Expectations!

Asana’s rival Monday.com had announced its results last month. Although Monday.com’s revenue grew 91% Y-o-Y, the company announced growth in the current quarter would be in the low 70s. That was enough for investors to head for the exit door. Monday.com’s shares tanked and took Asana along with it. Investors had priced in a similar fate for Asana, and its shares fell 23%.

Here’s how Asana’s results finally panned out.

Key Highlights From Q4:

  • Revenue: $111.9M Vs $105.2M (expected)
  • Loss Per Share: $0.25 Vs $0.28 (expected)
  • Net Loss: $90M Vs $61.5M Y-o-Y
  • Cash Flow: Negative $39.3M Vs Negative $18.2M
  • Total Paying Customers In Fiscal 2022: 119K

Asana has been looking to acquire more lucrative enterprise accounts. The numbers bore this out: The total clients spending $50K or more rose to 894 in Q4 from 397 during the same period last year. The net retention rate for this category stood at 145% Y-o-Y. Compare that to clients spending $5K or more, where growth stood at 52%, and the net retention rate was 130%.

It was the guidance that did the company in. For the current quarter, Asana expects revenue growth to slow to ~50% from 64% in Q4. For the full fiscal 2023, revenue growth is likely to slow to 39% from 67% in the fiscal year 2022.

Is there an opportunity or a confidence-building measure where there’s a dip? Asana CEO Dustin Moskovitz, a former Facebook employee who co-founded the company, has been buying up shares of Asana since June 2021. After spending about $1B thus far, Moskovitz now owns 21% or 16.6M shares of the company’s class A stock and 76% of the class B stock.

Are Asana and its ilk victims of their performance? The fact that the pandemic levels of growth would not sustain was a no-brainer. So who is the one at fault? The company for failing to sustain the momentum? Or the investor, who hoped that every day at these companies would be a Sunday? or the analysts, who projected high estimates and then downgraded the stock when they weren’t met?

Asana’s shares are down 75% from their peak. This level of correction notwithstanding, shares are trading at a full-year price-to-sales multiple of 15.35X. Is that lofty for a loss-making company with negative cash flow? Again, Moskovitz has immense confidence in his company. But do investors share that sentiment? Maybe a task on Asana might help figure that out!

Market Reaction
ASAN ended at $34.01, up 3.22%.

Company Snapshot 📈

ASAN $34.01 +1.02 (3.22%)

Analyst Ratings (13 Analysts) BUY 61%  HOLD 31%  SELL 8%

Newsworthy 📰

Novelty: Starbucks, Volvo launch a pilot EV charging network at coffee giant’s stores (SBUX +4.83%)

Another Hike: Tesla raises prices for second time in days on rising costs (TSLA +4.63%)

Confidence: American Airlines believes strong bookings can offset rising fuel prices (AAL +9.26%)

Later Today 🕒

  • Jabil Inc. Earnings (JBL)
  • Lennar Corp. Earnings (LEN)
  • PagerDuty Inc. Earnings (PD)
  • Williams-Sonoma Inc. Earnings (WSM)
  • 7:00 PM IST: Retail Sales
  • 11:30 PM IST: FOMC Rates Decision
  • 12:00 AM IST: Fed Chair Jerome Powell News Conference

Today’s Market Terminology: Money Market Fund

A Money Market Fund is one that invests only in short-term securities like commercial paper, repurchase agreements, and government bills. The Net Asset Value per share is maintained at $1

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