3 reasons why Asana can be a long-term winner

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Since entering public markets in September 2021, specialist in work management software Asana (NYSE: ASAN) took investors on a roller coaster ride. Despite this turmoil, Asana’s business has flourished and the company looks set to be a long-term winner for three main reasons.

1. Asana Solves an Important Problem for Its Customers

If you’ve worked for a company of any size, you’ve probably deplored all the redundant project meetings, emails, and chat messages you deal with. These represent organizational symptoms of misunderstood priorities, ineffective planning and coordination, a lack of clarity on who is working on what, and the current state of a task or project.

Facebook co-founder Dustin Moskovitz suffered similar troubles at his workplace. When he co-founded Asana, he created work management software that teams can use to coordinate work and deliver projects reliably. Since launching the first version of its work management software in 2012, Asana has grown into a leading player in the field.

Image source: Getty Images.

Companies use Asana’s cloud-based tool to create project plans and assign tasks to team members. Asana’s intuitive web and mobile application interfaces make the plan, with milestones, activities, and schedules clear, visible to the entire team. Team members update work item progress and exchange important information using the tool. Asana provides a single, easy-to-read, current source of information, helping remote teams stay on the same page.

Businesses can use Asana’s versatile product to coordinate projects of all sizes, from small routine tasks to large initiatives, within and between multiple business departments. In addition, Asana offers work management models specifically designed for specific business processes such as employee onboarding and sales pipeline management. The company has also established partnerships with many technology companies such as Alphabet, Zoom, and Selling power to extend its functionality. According to a survey commissioned by Asana from market research firm IDC, Asana dramatically improves workplace productivity, on-time project delivery and employee satisfaction.

Asana serves a vast untapped market

IDC estimates the market for collaborative project and portfolio management applications at $ 22.6 billion in 2020 and predicts it will reach over $ 50 billion by 2024. Although Asana does not currently offer all products and functionality that this market encompasses, even a small part of that opportunity gives the company a long track.

Even within the market it currently serves, Asana has a major untapped opportunity. According to Forrester, there are approximately 1.25 billion information workers in the world. With its approximately 2 million paying users, Asana has entered less than 3% of this market.

Finally, the pandemic has pushed more employees to work from home and encouraged companies to actively recruit talent around the world. These trends make Asana’s efficient work management platform even more crucial.

Product adoption drives rapid growth

Asana’s easy-to-use product makes it quick and easy for businesses to scale. Asana has done a great job of getting its foot in the door with customers by offering limited features at no cost and then persuading those customers to pay for more advanced features.

More and more Asana customers are giving the company big bucks each year:

YoY growth (%)

January 31, 2021

Apr 30, 2021

Jul 31, 2021

October 31, 2021

Total paying customers

24%

30%

30%

28%

Paying customers> $ 5K

55%

53%

61%

58%

Paying customers> $ 50,000

92%

92%

111%

132%

SOURCE: CORPORATE PROFIT RELEASES

And the more customers spend with Asana, the faster they increase that spend year over year.

Net retention rate

January 31, 2021

Apr 30, 2021

Jul 31, 2021

October 31, 2021

Globally

> 115%

> 115%

> 118%

> 120%

Paying customers> $ 5K

125%

> 123%

> 125%

130%

Paying customers> $ 50,000

> 140%

> 140%

> 145%

> 145%

SOURCE: CORPORATE PROFIT RELEASES

Asana quickly grew revenue while maintaining best-in-class gross profit margins. The money it makes from its products is growing faster than the costs of building and maintaining those products.

Financial measure

January 31, 2021

Apr 30, 2021

Jul 31, 2021

October 31, 2021

Year-over-year revenue growth

57%

61%

72%

70%

Gross margin

88.2%

89.8%

89.2%

90.7%

SOURCE: CORPORATE PROFIT RELEASES

Some points to keep in mind

Asana operates in a fragmented and highly competitive industry. Besides many smaller players, there are more established competitors such as Monday.com and Atlassian it will be important to keep an eye on it. Asana will need to innovate and expand its product offerings to capture more of the market opportunities.

Asana is currently unprofitable. The company spends a lot of money investing in innovation and expansion, spending far more than its sales bring in.

In the first nine months of the year, Asana spent over 72% of its revenue on sales and marketing expenses, and over 53% on R&D, spending $ 46.4 million in cash. Despite these dire numbers, Asana’s losses diminish in proportion to the rapid growth in its sales. In the first nine months of the current fiscal year, the net loss as a percentage of revenue fell from 94.7% to 74.4% year-on-year. During the same periods, free cash flow as a percentage of sales improved from -36.82% to -17.41%.

So what should investors do?

A new opportunity, favorable winds in remote working, a compelling product, and strong execution have helped Asana secure over 114,000 customers in 190 countries. The company is renowned for its top-notch corporate culture. CEO Dustin Moskovitz has a 100% approval rating on the glassdoor.com employee survey website. At a relatively young age of 36, Moskovitz is heavily invested in the long-term success of the business, owning over 40% of Asana’s shares.

Like many high-growth tech stocks, Asana’s shares have been beaten in the past two months, and in early January, they are trading at a relatively lower price-to-sell ratio, much more in line with their major competitors. Investors who are tolerant of volatility and have long-term horizons may consider a small position in the company.

FB PE ratio graph (Forward 1y)

Data FB PE Ratio (Forward 1y) by YCharts

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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