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Asana (NYSE:ASAN) Reports Strong Q2, Lifts Full Year Guidance


Full Report / September 01, 2021
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Work management software maker Asana (NYSE: ASAN) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 71.9% year on year to $89.4 million. Asana made a GAAP loss of $68.3 million, down on its loss of $41 million, in the same quarter last year.

Asana (ASAN) Q2 FY2022 Highlights:

  • Revenue: $89.4 million vs analyst estimates of $82.2 million (8.77% beat)
  • EPS (non-GAAP): -$0.23 vs analyst estimates of -$0.26
  • Revenue guidance for Q3 2022 is $93.5 million at the midpoint, above analyst estimates of $86.6 million
  • The company lifted revenue guidance for the full year, from $338 million to $358 million at the midpoint, a 5.91% increase
  • Free cash flow was negative -$9.27 million, compared to negative free cash flow of -$7.67 million in previous quarter
  • Net Revenue Retention Rate: 118%, up from 115% previous quarter
  • Customers: 107,000, up from 100,000 in previous quarter
  • Gross Margin (GAAP): 88.9%, in line with previous quarter

Founded in 2008 by Facebook’s co-founder Dustin Moskovitz, Asana 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 $52 million, to $89.4 million.

Asana Total Revenue

This was another standout quarter with the revenue up a splendid 71.9% year on year. On top of that, revenue increased $12.8 million quarter on quarter, a very strong improvement on the $8.3 million increase in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 33.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Asana reported 107,000 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 118% in Q2. That means even if they didn't win any new customers, Asana would have grown its revenue 18% 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, licences, technical support and other necessary running expenses was at 88.9% in Q2.

Asana Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.88 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year 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 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 $13.6 billion and more than $373.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly Asana outperformed analysts’ revenue expectations this 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. The company is down -3.72% on the results and currently trades at $74.41 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 34.0x 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.

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