4072

Asana (NYSE:ASAN) Reports Strong Q3 But Stock Drops 10.6%


Full Report / December 02, 2021
Add to Watchlist

Work management software maker Asana (NYSE: ASAN) beat analyst expectations in Q3 FY2022 quarter, 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.

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

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.

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

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 $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.

Customer Growth

You can see below that Asana reported 114,000 customers at the end of the quarter, an increase of 7,000 on last quarter. That's about the same customer growth as what we seen last quarter and quite a bit above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

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 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.

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 90.4% in Q3.

Asana Gross Margin (GAAP)

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. Significantly up from the last quarter, 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.

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 exceptional revenue growth Asana delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this impressive quarter should have shareholders feeling very positive. But investors might have been expecting more and the company is down 10.6% on the results and currently trades at $81.22 per share.

Is Now The Time?

Asana may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Asana is a good 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 very efficient customer acquisition hints at the potential for strong profitability.

Asana's price to sales ratio based on the next twelve months of 37.8x indicates that the market is certainly optimistic about its growth prospects. There is definitely a lot of 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 $111 per share right before these results, implying that they saw upside in buying Asana even in the short term.

To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds from the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.