Asana (NYSE:ASAN) Beats Q3 Sales Targets But Stock Drops 12.2% On Weak Guidance

Jabin Bastian /
2022/12/01 4:19 pm EST

Work management software maker Asana (NYSE: ASAN) reported Q3 FY2023 results topping analyst expectations, with revenue up 40.9% year on year to $141.4 million. However, guidance for the next quarter was less impressive, coming in at $145 million at the midpoint, being 4.04% below analyst estimates. Asana made a GAAP loss of $100.9 million, down on its loss of $69.2 million, in the same quarter last year.

Is now the time to buy Asana? Access our full analysis of the earnings results here, it's free.

Asana (ASAN) Q3 FY2023 Highlights:

  • Revenue: $141.4 million vs analyst estimates of $139 million (1.73% beat)
  • EPS (non-GAAP): -$0.26 vs analyst estimates of -$0.32
  • Revenue guidance for Q4 2023 is $145 million at the midpoint, below analyst estimates of $151.1 million
  • Free cash flow was negative $48.5 million, compared to negative free cash flow of $42.2 million in previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Gross Margin (GAAP): 89.2%, down from 90.4% same quarter last year

“We reported a strong quarter with revenues up 41 percent year over year. The number of customers spending $100,000 or more grew 78 percent, year over year, and our largest deployment is now over 150,000 seats. Our success with large enterprises continues to drive growth,” 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 exceptional over the last two years, growing from quarterly revenue of $58.9 million in Q3 FY2021, to $141.4 million.

Asana Total Revenue

And unsurprisingly, this was another great quarter for Asana with revenue up 40.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $6.54 million in Q3, compared to $14.2 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Asana is expecting revenue to grow 29.5% year on year to $145 million, slowing down from the 63.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 29.7% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Asana Net Revenue Retention Rate

Asana's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 120% in Q3. That means even if they didn't win any new customers, Asana would have grown its revenue 20% year on year. That is a good retention rate and a proof that Asana's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Key Takeaways from Asana's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Asana’s balance sheet, but we note that with a market capitalization of $3.83 billion and more than $545.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Asana’s impressive revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and that the sales momentum is slowing down. Overall, it seems to us that this was a complicated quarter for Asana. The company is down 12.2% on the results and currently trades at $15.88 per share.

Asana may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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