Work management software maker Asana (NYSE: ASAN) reported results ahead of analyst expectations in the Q4 FY2023 quarter, with revenue up 34.2% year on year to $150.2 million. The company expects that next quarter's revenue would be around $150.5 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Asana made a GAAP loss of $95 million, down on its loss of $90 million, in the same quarter last year.
Asana (ASAN) Q4 FY2023 Highlights:
- Revenue: $150.2 million vs analyst estimates of $145.1 million (3.52% beat)
- EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.27
- Revenue guidance for Q1 2024 is $150.5 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2024 is $643 million at the midpoint, missing analyst estimates by 0.45% and predicting 17.5% growth (vs 45.8% in FY2023)
- Free cash flow was negative $34.2 million, compared to negative free cash flow of $48.5 million in previous quarter
- Net Revenue Retention Rate: 115%, down from 120% previous quarter
- Gross Margin (GAAP): 89.9%, 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 exceptional over the last two years, growing from quarterly revenue of $68.4 million in Q4 FY2021, to $150.2 million.
And unsurprisingly, this was another great quarter for Asana with revenue up 34.2% year on year. On top of that, revenue increased $8.79 million quarter on quarter, a very strong improvement on the $6.54 million increase in Q3 2023, and a sign of acceleration of growth.
Guidance for the next quarter indicates Asana is expecting revenue to grow 24.7% year on year to $150.5 million, slowing down from the 57.4% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $643 million at the midpoint, growing 17.5% compared to 44.6% increase in FY2023.
Large Customers Growth
You can see below that at the end of the quarter Asana reported 19,432 enterprise customers paying more than $5,000 annually, an increase of 732 on last quarter. That is quite a bit more contract wins than last quarter but also quite a bit below what we have typically seen over the last year, suggesting that the company may be reinvigorating growth.
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'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 115% in Q4. That means even if they didn't win any new customers, Asana would have grown its revenue 15% year on year. Despite it going down over the last year this is still 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 89.9% in Q4.
That means that for every $1 in revenue the company had $0.90 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 have followed 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 $34.2 million in Q4,
Asana has burned through $167.2 million in cash over the last twelve months, a negative 30.6% 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 Q4 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 $3.72 billion and more than $529.3 million in cash, the company has the capacity to continue to prioritise growth over profitability.
It was good to see Asana deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and the revenue retention rate deteriorated. Overall, this quarter's results could have been better. The company is down 1.66% on the results and currently trades at $17.5 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. Although Asana is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. But while its impressive gross margins are indicative of excellent business economics, the downside is that its growth is coming at a cost of significant cash burn and its customer acquisition is less efficient than many comparable companies.
The market is certainly expecting long term growth from Asana given its price to sales ratio based on the next twelve months is 5.9x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Asana doesn't trade at a completely unreasonable price point.
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