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Asana (NYSE:ASAN) Q2: Beats On Revenue, Stock Soars


Full Report / September 20, 2022
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Work management software maker Asana (NYSE: ASAN) reported Q2 FY2023 results beating Wall St's expectations, with revenue up 50.7% year on year to $134.8 million. The company expects that next quarter's revenue would be around $139 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Asana made a GAAP loss of $112.9 million, down on its loss of $68.3 million, in the same quarter last year.

Asana (ASAN) Q2 FY2023 Highlights:

  • Revenue: $134.8 million vs analyst estimates of $127.2 million (5.99% beat)
  • EPS (non-GAAP): -$0.34 vs analyst estimates of -$0.39
  • Revenue guidance for Q3 2023 is $139 million at the midpoint, above analyst estimates of $137.8 million
  • The company lifted revenue guidance for the full year, from $538 million to $545.5 million at the midpoint, a 1.39% increase
  • Free cash flow was negative $42.2 million, compared to negative free cash flow of $42.2 million in previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Customers: 131,000, up from 126,000 in previous quarter
  • Gross Margin (GAAP): 89.8%, in line with same quarter last year

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.

A lot of project planning and management work is still done with a mixture of emails, spreadsheets that only exist on one person’s computer, hand written notes and in-person meetings. As a result, a lot of time is lost tracking down who does what, when, and how, with team managers organizing multiple meetings to get accurate updates on the progress of a project.

Asana aims to reduce the amount of this "work about work" by integrating with a large number of other services like Dropbox, Slack or email and creating a centralised dashboard with a system of record for all information related to work planning.

For example, using Asana, editors can assign tasks to reporters and writers and in real time check progress on how different articles are coming together. Articles are linked and tracked from text documents directly into the dashboard, where editors provide writers with feedback. Asana also provides reporting features to visualize the status of the project and help the teams spot potential problems and keep work on track.

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.

It is a crowded market and Asana is competing with companies like Atlassian (NASDAQ:TEAM), SmartSheet (NYSE:SMAR), Monday.com (NASDAQ:MNDY) and Productboard.

Sales Growth

As you can see below, Asana's revenue growth has been incredible over the last year, growing from quarterly revenue of $89.4 million, to $134.8 million.

Asana Total Revenue

This was another standout quarter with the revenue up a splendid 50.7% year on year. On top of that, revenue increased $14.2 million quarter on quarter, a very strong improvement on the $8.69 million increase in Q1 2023, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Asana is expecting revenue to grow 38.5% year on year to $139 million, slowing down from the 70.3% 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 30.9% over the next twelve months.

Customer Growth

You can see below that Asana reported 131,000 customers at the end of the quarter, an increase of 5,000 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Asana Customers

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 Q2. 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.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Asana's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 89.8% in Q2.

Asana Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.89 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like Asana to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Asana is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Asana burned through $42.2 million in Q2, increasing the cash burn by 356% year on year.

Asana Free Cash Flow

Asana has burned through $155.2 million in cash over the last twelve months, a negative 33.1% free cash flow margin. This low FCF margin is a result of Asana's need to still heavily invest in the business.

Key Takeaways from Asana's Q2 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 $3.59 billion and more than $238.9 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Asana delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was unfortunate to see the slowdown in customer growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $25.4 per share.

Is Now The Time?

When considering Asana, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Asana is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its growth is coming at a cost of significant cash burn, the good news is its impressive gross margins are indicative of excellent business economics, and its customers are increasing their spending quite quickly, suggesting that they love the product.

Asana's price to sales ratio based on the next twelve months is 6.0x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Asana and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $32.4 per share right before these results, implying that they saw upside in buying Asana even in the short term.

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