Why Asana (ASAN) Shares Are Plunging Today

Anthony Lee /
2023/12/06 10:49 am EST

What Happened:

Shares of work management software maker Asana (NYSE: ASAN) fell 7.7% in the morning session after the company reported third quarter results with revenue narrowly topping analysts' expectations, although calculated billings (revenue + change in deferred revenue) missed. Additionally, net revenue retention, an important metric that could give hints on customer satisfaction, customer willingness to increase spending, and even competition, fell and missed expectations. Management attributed some challenges faced in the quarter to macroeconomic headwinds, with a particular impact on renewals. However, they observed some signs of stabilization in new business and expect the decline in net retention rate to bottom in the first quarter of the next fiscal year. Looking ahead, guidance was good. Next quarter's guidance was ahead, and full year guidance was raised for revenue and non-GAAP operating income. 

Overall, the results could have been better, with the company highlighting several challenges that could raise concerns among investors.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Asana? Access our full analysis report here, it's free.

What is the market telling us:

Asana's shares are very volatile and over the last year have had 54 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 5 days ago, when the company gained 5% after stocks rallied as traders continued to expect more accommodating policy decisions from the Fed in the coming months. Fed Chair Jerome Powell said in a speech, "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease..." However, the market seems to be shrugging off these comments despite them coming from the Fed Chair. The Federal Reserve has been raising interest rates to combat inflation, and the latest data showed that their efforts may be paying off. As a result, there seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower. 

As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.

Asana is up 49.3% since the beginning of the year, but at $19.76 per share it is still trading 21.1% below its 52-week high of $25.03 from June 2023. Investors who bought $1,000 worth of Asana's shares at the IPO in September 2020 would now be looking at an investment worth $686.81.

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