Asana (NYSE:ASAN) Beats Q2 Sales Targets, Next Quarter Growth Looks Optimistic

Kayode Omotosho /
2023/09/05 4:22 pm EDT

Work management software maker Asana (NYSE: ASAN) announced better-than-expected results in Q2 FY2024, with revenue up 20.4% year on year to $162.5 million. The company also expects next quarter's revenue to be around $164 million, in line with analysts' estimates.

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Asana (ASAN) Q2 FY2024 Highlights:

  • Revenue: $162.5 million vs analyst estimates of $157.8 million (2.96% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.12
  • Revenue Guidance for Q3 2024 is $164 million at the midpoint, above analyst estimates of $162.8 million
  • The company reconfirmed its revenue guidance for the full year of $645 million at the midpoint
  • Free Cash Flow of $14.6 million is up from -$17.3 million in the previous quarter
  • Net Revenue Retention Rate: 105%, down from 110% in the previous quarter
  • Gross Margin (GAAP): 90%, in line with the same quarter last year

“Asana’s Q2 results beat expectations on the top and bottom line. Revenue growth was better than our guidance, operating margin improved 37 percentage points, and we posted positive free cash flow,” said Dustin Moskovitz, co-founder and chief executive officer of Asana.

Founded in 2008 by Facebook’s co-founder Dustin Moskovitz, Asana (NYSE:ASAN) is a cloud-based project management software, where you can plan and assign tasks to employees and monitor and discuss progress of work.

The future of work requires teams to collaborate across departments and remote offices. Project management software is both driving this change and benefiting from it. While the trend of collaborative work management has been strong for a while, the Covid pandemic has definitively accelerated the demand for tools that allow work to be done remotely.

Sales Growth

As you can see below, Asana's revenue growth has been impressive over the last two years, growing from $89.5 million in Q2 FY2022 to $162.5 million this quarter.

Asana Total Revenue

This quarter, Asana's quarterly revenue was once again up a very solid 20.4% year on year. On top of that, its revenue increased $10 million quarter on quarter, a very strong improvement from the $2.18 million increase in Q1 2024. This is a sign of acceleration of growth and great to see.

Next quarter's guidance suggests that Asana is expecting revenue to grow 16% year on year to $164 million, slowing down from the 41% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14.3% over the next 12 months before the earnings results announcement.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Asana Net Revenue Retention Rate

Asana's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q2. This means that even if Asana didn't win any new customers over the last 12 months, it would've grown its revenue by 5%.

Despite falling over the last year, Asana still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from Asana's Q2 Results

Although Asana, which has a market capitalization of $4.69 billion, has been burning cash over the last 12 months, its more than $537.5 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

This was a mixed quarter. It was good to see Asana beat analysts' revenue expectations this quarter and generate positive free cash flow,. On the other hand, billings (another important topline metric) missed, and net revenue retention both fell from last quarter's levels and was below expectations. On a positive note, we were glad that next quarter's revenue guidance came in higher than Wall Street's estimates. Full year revenue guidance was raised slightly, but full year non-GAAP operating profit guidance was reduced. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $21.5 per share.

So should you invest in Asana right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.