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Asana (NYSE:ASAN) Beats Q1 Sales Targets, Provides Optimistic Full Year Guidance


Full Report / June 27, 2022
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Work management software maker Asana (NYSE: ASAN) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 57.3% year on year to $120.6 million. Guidance for next quarter's revenue was $127.5 million at the midpoint, which is 1.68% above the analyst consensus. Asana made a GAAP loss of $98.8 million, down on its loss of $60.6 million, in the same quarter last year.

Asana (ASAN) Q1 FY2023 Highlights:

  • Revenue: $120.6 million vs analyst estimates of $115.1 million (4.8% beat)
  • EPS (non-GAAP): -$0.30 vs analyst estimates of -$0.36
  • Revenue guidance for Q2 2023 is $127.5 million at the midpoint, above analyst estimates of $125.3 million
  • The company lifted revenue guidance for the full year, from $529 million to $538 million at the midpoint, a 1.7% increase
  • Free cash flow was negative $42.2 million, compared to negative free cash flow of $41.2 million in previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Customers: 126,000, up from 119,000 in previous quarter
  • Gross Margin (GAAP): 89.6%, 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 $76.6 million, to $120.6 million.

Asana Total Revenue

This was another standout quarter with the revenue up a splendid 57.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $8.69 million in Q1, compared to $11.6 million in Q4 2022. 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 42.4% year on year to $127.5 million, slowing down from the 71.9% 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 35.6% over the next twelve months.

Customer Growth

You can see below that Asana reported 126,000 customers at the end of the quarter, an increase of 7,000 on last quarter. That is a fair bit better customer growth than last quarter and a fair bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

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 Q1. That means even if they didn't win any new customers, Asana would have grown its revenue 20% year on year. Trending up over the last year, this 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 89.6% in Q1.

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 Q1, increasing the cash burn by 451% year on year.

Asana Free Cash Flow

Asana has burned through $122.2 million in cash over the last twelve months, a negative 28.9% 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 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 $4.03 billion and more than $281.3 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 to see the acceleration in customer growth. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. But the market was likely expecting more and the company currently trades at $22 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 8.0x, 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 the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $48.2 per share right before these results, implying that they saw upside in buying Asana even in the short term.

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