Asana

Disclaimer: information here is personal opinion. It is for educational purposes only and not investment advice.

Ticker: ASAN; Date of analysis: 3/12/2024

Rating: Watch and buy below $12

The company will keep growing revenue at 20-30%/yr. Their retention rate is >100% and they have a strong switching moat. However, their stock price is very high right now. 

About: They provide project management software. I’ve used the software. It’s very easy to use and light weight.

Moat: They have a Switching Cost moat. Once a bunch of teams in the company use a project management software, it’s very difficult to move away. This gives them time to innovate and catch up to competition.

Customers’ opinions: I liked the product as a customer. Most people in my last company liked using Asana.

Financials: Their growth rate has slowed from 45%/yr to 15%/yr due to recession. In that time operating margin has improved from -84% to -48%. They have been cutting costs and trying to get to profitability.

In last 12 months, their competitor Smartsheet’s operating margin was -16% and Salesforce’s was 2.1%. They have a ways to go to get to profitability.

Subscribers: As of 10/31/2023, their dollar-based net retention rate was over 100%. For core customers (Spend >$5k) it was over 105%. For customers paying over $100k, it was over 120%. Their retention rate is strong and their top paying customers are growing spend at a faster rate than smaller customers. This is a great sign.

Debt: They have $280M total debt and $530M cash. They have a runway for 12-18 months with burn of around $340M. That can extend to 2-3 years if they get their operating loss under control.

3 yr forecast: assuming 20% revenue growth going forward and if they can get their operating costs under control, they can make $110M operating profit in 3 years. Assuming 30% growth, they can make $140M profit. 

Three years out, their value should be between $3-7B. Their current market value (3/12/2024) is at $3.6B, which is very close to the likely scenario 3 years out. There is no margin of safety right now. I would watch and buy at $2.5B or lower. That’s a stock price of $12 or lower.

Insiders: CFO and COO have sold shares regularly. However, CEO bought 237M shares in Nov 2023. That’s a major positive indicator. He has bought shares multiple times in the last year.

Competition: most other project management softwares are in a similar boat -spending a lot on operating costs to drive growth. They will need to optimize their R&D and SG&A to become profitable. Salesforce is a good target model to follow.

1. Smartsheet
2. Salesforce
3. Monday.com
4. JIRA

Conclusion

Positives:

1. Growing fast. 
2. Making the right moves in terms of cost reduction
3. CEO/Founder buying stocks

Negatives

1. Growth is slowing
2. Lot of competition in project management software
3. Too expensive right now.
4. Only 12-18 months of runway