Asana (NYSE:ASAN) Exceeds Q1 Expectations But Stock Drops

Jabin Bastian /
2023/06/01 4:13 pm EDT

Work management software maker Asana (NYSE: ASAN) reported results ahead of analyst expectations in the Q1 FY2024 quarter, with revenue up 26.3% year on year to $152.4 million. The company expects that next quarter's revenue would be around $158 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Asana made a GAAP loss of $61.5 million, improving on its loss of $98.9 million, in the same quarter last year.

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Asana (ASAN) Q1 FY2024 Highlights:

  • Revenue: $152.4 million vs analyst estimates of $150.6 million (1.22% beat)
  • EPS (non-GAAP): -$0.09 vs analyst estimates of -$0.18
  • Revenue guidance for Q2 2024 is $158 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $644 million at the midpoint
  • Free cash flow was negative $17.3 million, compared to negative free cash flow of $34.2 million in previous quarter
  • Net Revenue Retention Rate: 110%, down from 115% previous quarter
  • Gross Margin (GAAP): 90.3%, in line with same quarter last year

“As organizations move rapidly to leverage the benefits of AI, our partnerships with some of the largest most strategic companies in the world will be instrumental in informing our product roadmap," 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 $76.7 million in Q1 FY2022, to $152.4 million.

Asana Total Revenue

This quarter, Asana's quarterly revenue was once again up a very solid 26.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.18 million in Q1, compared to $8.79 million in Q4 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 17.1% year on year to $158 million, slowing down from the 50.8% 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 15.6% over the next twelve months.

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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 110% in Q1. That means even if they didn't win any new customers, Asana would have grown its revenue 10% year on year. Despite it going down over the last year this is still a decent retention rate and it shows us that not only Asana's customers stick around but at least some of them get increasing value from its software over time.

Key Takeaways from Asana's Q1 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 $5.17 billion and more than $523.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

Asana topped analysts’ revenue expectations this quarter, even if just narrowly. We also liked to see the reduction in cash burn. On the other hand, it was less good to see the deterioration in revenue retention rate. Overall, it seems to us that this was a complicated quarter for Asana. The company is down 6.3% on the results and currently trades at $21.4 per share.

Should you invest in Asana 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.

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