Work management platform Asana (NYSE:ASAN) must have suffered one of the most brutal re-ratings of any company on the stock market this last six months. The firm was trading at highs of $142 as late as November 2021, but lost nearly 80% of its value to fall to just $30 today.
As disheartening as this will be for investors who are already holding the stock, the company’s current price suggests that the business might very well be a bargain just now. Indeed, for a firm whose revenues grew 67 percent this last year, its forward sales multiple of 11x makes it look cheap at the present time.
But is there more going on below the surface with this company – and has its precipitous price decline really hit rock bottom yet?
Asana Has Massive Market Opportunity
Asana is a project management and team collaboration tool that’s designed to help companies manage, track and organize their workloads in as efficient a manner as possible. The business floated in 2020 after a direct public offering, and has a market cap today of $5.5 billion.
The key question for investors right now is whether Asana still has enough gas left in the tank to keep on growing.
After its remorseless sell-off recently, potential buyers of the stock might reasonably expect the firm’s shares to start showing some significant capital appreciation again – especially if the company can begin to demonstrate signs that the business is getting back on track once more.
Indeed, Asana’s management believes the firm has an excellent opportunity to expand its presence in the industry, with a large, under-served market of 1.25 billion workers worldwide ready to become its future paying customers. In fact, at less than 5 percent user penetration at the moment, the firm’s optimism appears well placed.
However, how realistic is it that Asana can live up to that aspiration?
Source: Unsplash
Asana’s Financials: Taking The Good With The Bad
So what are the concrete positives that investors can glean from the firm’s latest earnings report?
Firstly, the company’s doing a great job of keeping its recurring revenues coming in year after year. Its overall dollar-based net retention rate (NRR) for the fourth quarter was a pleasing 120 percent, while the same metric for customers with $5,000 or more in annualized spend was over 130 percent. Things looked even better for the cohort of users who spent more than $50,000, with an NRR of above 145 percent as well.
Metrics like these aren’t just great on a numbers basis; they’re also indicative of the fact that whatever Asana’s doing, it’s working particularly well with its highest spending users – which is a great sign that its future fortunes are on the way up.
Secondly, Asana isn’t just keeping hold of its revenue streams – it’s also adding new business at a healthy clip too. The company ended the fiscal year with more than 119,000 paying users, and was growing its highest paying customers at a rapid rate as well.
For instance, the number of users spending $5,000 or more annually grew to 15,437 during the quarter – an increase of 52 percent year-on-year – with revenues from those customers spiking 82 percent to boot. Furthermore, the company also grew its $50,000 or more user category by 125 percent, bringing its grand total here to 894.
These figures are perfect for Asana, who, as a company still very much in its growth phase, will benefit from its expanding customer and sales base. And calculating the firm’s annual run rate based on its latest quarterly revenues, the business is hoping for a yearly top-line to the tune of a massive $448 million.
In fact, it should be reiterated that for a company whose product is still so early in its adoption curve, to have an NRR of 145 percent in its highest paying group of customers is staggering. This suggests that once the firm has a client onside, they’re able to effectively scale that business, and enjoy the network effects that come along with it.
However, there are still a couple of issues that could blot Asana’s scorecard going forward.
To begin with, the company’s quarterly revenue growth has been falling sequentially for the last two periods, going from 72 percent in Q2FY22, 70 percent in Q3FY22, and finally 64 percent in Q4FY22. This isn’t a huge problem just yet – 64 percent growth is still pretty good – but it’s something to bear in mind.
More concerning, though, is Asana’s high capital burn rate. The business suffered a net loss this year of $288.3 million – more than its fiscal 2021 deficit of $211.7 million – with a net income margin of negative 76 percent off of a very good gross profit margin of 90 percent.
To put this into perspective, one of Asana’a main rivals in the space, Workiva, had a much higher net income margin of negative 8.5 percent, with a corresponding gross profit margin of positive 77 percent. That’s a big differential, and one that shareholders can’t easily ignore.
Is Asana A Buy?
While these kind of losses are disconcerting, Asana has explained that its growth strategy of building a “high value brand”, working on product innovation, and following through on its customer expansion plans are well worth the extra investment.
Indeed, the company believes that with its superior revenue growth and strong gross margins, it now has a clear path to profitability. The firm also demonstrates that with its increased traction on its larger recurring revenue contracts, it has a weighty growth driver for the future.
If the sell-off really is over, the company looks like a solid buy. Its multiples are fairly priced for a business with such huge opportunities, and it’s likely that it won’t be this cheap for quite some time.
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