Asana (NYSE:ASAN) Reports Upbeat Q3 But Stock Drops 10.1%

Radek Strnad /
2021/12/02 4:24 pm EST
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Work management software maker Asana (NYSE: ASAN) reported Q3 FY2022 results that beat analyst expectations, with revenue up 70.3% year on year to $100.3 million. Guidance for next quarter's revenue was surprisingly good, being $105 million at the midpoint, 6.34% above what analysts were expecting. Asana made a GAAP loss of $69.2 million, improving on its loss of $73.2 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 FY2022 Highlights:

  • Revenue: $100.3 million vs analyst estimates of $93.8 million (6.85% beat)
  • EPS (non-GAAP): -$0.23 vs analyst estimates of -$0.27
  • Revenue guidance for Q4 2022 is $105 million at the midpoint, above analyst estimates of $98.7 million
  • Free cash flow was negative $29.4 million, compared to negative free cash flow of $9.26 million in previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Customers: 114,000, up from 107,000 in previous quarter
  • Gross Margin (GAAP): 90.4%, up from 87.5% same quarter last year

“Q3 was another strong quarter, led by record user adoption and large enterprise wins,” 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.

As work is becoming more digitized and distributed, the demand for project management software has been rising.

Sales Growth

As you can see below, Asana's revenue growth has been incredible over the last year, growing from quarterly revenue of $58.9 million, to $100.3 million.

Asana Total Revenue

This was another standout quarter with the revenue up a splendid 70.3% year on year. But the growth did slow down a little compared to last quarter, as Asana increased revenue by $10.8 million in Q3, compared to $12.8 million revenue add in Q2 2022. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Analysts covering the company are expecting the revenues to grow 34.1% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Asana. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. 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. Significantly up from the last quarter, this 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 $16.5 billion and more than $343.3 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the very optimistic revenue guidance Asana provided for the next quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. But there is a lot of volatility in the growth stocks at the moment and the company is down 10.1% on the results and currently trades at $81.72 per share.

Asana may have had a good quarter, so should you 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.

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