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Asana's (NYSE:ASAN) Q4 Sales Top Estimates But Stock Drops 19%


Full Report / March 09, 2022
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Work management software maker Asana (NYSE: ASAN) reported Q4 FY2022 results beating Wall St's expectations, with revenue up 63.7% year on year to $111.9 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $115 million at the midpoint, 3.18% above what analysts were expecting. Asana made a GAAP loss of $90 million, down on its loss of $61.5 million, in the same quarter last year.

Asana (ASAN) Q4 FY2022 Highlights:

  • Revenue: $111.9 million vs analyst estimates of $105.1 million (6.43% beat)
  • EPS (non-GAAP): -$0.25 vs analyst estimates of -$0.28
  • Revenue guidance for Q1 2023 is $115 million at the midpoint, above analyst estimates of $111.4 million
  • Management's revenue guidance for upcoming financial year 2023 is $529 million at the midpoint, beating analyst estimates by 4.3% and predicting 39.7% growth (vs 66.6% in FY2022)
  • Free cash flow was negative $41.2 million, compared to negative free cash flow of $29.4 million in previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Customers: 119,000, up from 114,000 in previous quarter
  • Gross Margin (GAAP): 89.6%, up from 88% 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 $68.3 million, to $111.9 million.

Asana Total Revenue

This was another standout quarter with the revenue up a splendid 63.7% year on year. On top of that, revenue increased $11.6 million quarter on quarter, a solid improvement on the $10.8 million increase in Q3 2022, and happily, a slight acceleration of growth.

Guidance for the next quarter indicates Asana is expecting revenue to grow 49.9% year on year to $115 million, slowing down from the 60.7% 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 $529 million at the midpoint, growing 39.7% compared to 66.6% increase in FY2022.

Customer Growth

You can see below that Asana reported 119,000 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 Q4. 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 Q4.

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 $41.2 million in Q4, increasing the cash burn by 135% year on year.

Asana Free Cash Flow

Asana has burned through $87.6 million in cash over the last twelve months, a negative 23.1% 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 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 $8.52 billion and more than $312 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 rest of the year exceeded expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and there was a slowdown in customer growth. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 19% on the results and currently trades at $39.5 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. 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 customers are increasing their spending quite quickly, suggesting that they love the product.

The market is certainly expecting long term growth from Asana given its price to sales ratio based on the next twelve months is 18.2x. 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 $106.4 per share right before these results, implying that they saw upside in buying Asana even in the short term.

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