Asana (ASAN)

Work management software maker Asana (NYSE: ASAN) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 10% year on year to $188.3 million. On the other hand, the company’s full-year revenue guidance of $786 million at the midpoint came in 2.1% below analysts’ estimates. Its non-GAAP loss of $0 per share was $0.01 above analysts’ consensus estimates.

Company Overview

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.

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.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Asana grew its sales at a solid 24.1% compounded annual growth rate. Its growth beat the average software company and shows its offerings resonate with customers.

This quarter, Asana’s year-on-year revenue growth was 10%, and its $188.3 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is above the sector average and indicates the market is baking in some success for its newer products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Asana’s billings came in at $209 million in Q4, and over the last four quarters, its growth slightly lagged the sector as it averaged 9.4% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for Asana to acquire new customers as its CAC payback period checked in at 118.5 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Asana’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 97.5% in Q4. This means Asana’s revenue would’ve decreased by 2.5% over the last 12 months if it didn’t win any new customers.

Asana’s already weak net retention rate has been dropping the last year, signaling that some customers aren’t satisfied with its products, leading to lost contracts and revenue streams.

For software companies like Asana, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Asana’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 89.3% gross margin over the last year. That means Asana only paid its providers $10.66 for every $100 in revenue.

In Q4, Asana produced a 89.6% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Asana’s expensive cost structure has contributed to an average operating margin of negative 36.8% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if Asana reeled back its investments. Wall Street seems to be optimistic about its growth, but we have some doubts.

Over the last year, Asana’s expanding sales gave it operating leverage as its margin rose by 4.5 percentage points. Still, it will take much more for the company to reach long-term profitability.

This quarter, Asana generated a negative 33.8% operating margin. The company's consistent lack of profits raise a flag.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Asana broke even from a free cash flow perspective over the last year, giving the company limited opportunities to return capital to shareholders.

Asana’s free cash flow clocked in at $12.34 million in Q4, equivalent to a 6.6% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Asana’s cash conversion will improve. Their consensus estimates imply its breakeven free cash flow margin for the last 12 months will increase to 5.8%, giving it more optionality.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Asana is a well-capitalized company with $466.9 million of cash and $263.1 million of debt on its balance sheet. This $203.8 million net cash position is 5.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

Revenue was just in line and revenue guidance for both the upcoming quarter and full year missed. Dustin Moskovitz, the CEO of Asana and one of the original co-founders of Facebook, announced his intention to retire. This was an underwhelming quarter, especially as the market continues to rotate out of premium-priced tech. The stock traded down 25.3% to $12.48 immediately after reporting.

Updated: May 10, 2025 at 10:13 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Asana, you should also grasp the company’s longer-term business quality and valuation.

Asana’s business quality ultimately falls short of our standards. Although its revenue growth was solid over the last three years, it’s expected to deteriorate over the next 12 months and its software has low switching costs and high turnover. And while the company’s admirable gross margin indicates excellent unit economics, the downside is its operating margins reveal poor profitability compared to other software companies.

Asana’s price-to-sales ratio based on the next 12 months is 5.1x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $15.38 on the company (compared to the current share price of $17.31).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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