Asana Tells a Growth Story, But it’s Not One Investors Want to Hear
This is my first time writing about Asana (NYSE:ASAN). The software-as-a-service (SaaS) workflow management company operates in a competitive sector. However, Asana is holding its own on the top line. Revenue continues to show steady growth on both a quarterly and year-over-year basis. Despite that, ASAN stock is down 62% from its 52-week high of $145.79 as investors continue their flight to value.
Is that the only reason? Maybe not, but it does appear to be the most likely explanation. The company delivered a solid earnings report in December, but analysts didn’t seem to be particularly impressed. Only one analyst boosted their price target, while five analysts lowered their targets; albeit still keeping the ASAN stock price higher than it is at the time of this writing.
The Right Story at the Wrong Time
Just a few short months ago, I believed investors would be plowing into Asana. The company continued to grow revenue by every imaginable metric. The number of customers spending more than $5,000 has gone higher. The number of customers spending over $50,000 has gone higher. And the company is doing all of this while retaining customers, as well.
Asana also believes there is a large addressable market that will allow the company to keep growing revenue. This is one sticking point for investors. And even my InvestorPlace.com colleagues have competing views.
On the one hand, Louis Navallier is bullish about ASAN stock in the long-term. This is due to an addressable market that is potentially worth $50 billion in annual revenue. Even with a number of competitors, that would still leave room for growth.
On the other hand, as Stavros Georgiadis points out, with the kind of revenue growth Asana is enjoying, investors would prefer to see earnings growth at a much faster rate. Particularly in this current “flight to value” market.
The company’s upcoming earnings report will close out its fiscal year (FY) 2022. At the time of its direct listing in 2020, the company was projecting profitability sometime in FY 2023. However, on the earnings call, the company sidestepped the question of whether they were on track to accomplish that.
Growth Costs Money
In fairness, the lack of profitability is due to heavy investment into both sales and marketing and research and development.
Sales and marketing was $65.8 million, or 66% of revenue, “reflecting the investments in growth in both [its] self-serve and direct sales motion.” This will be a number to watch as investors hope that it begins to take up significantly less space on the balance sheet.
Research and development was 39% of revenue at $39.1 million. I’m less concerned about this number. This is a competitive field. And the company will have to continue to provide innovate solutions, particularly when they are competing with the likes of Microsoft’s (NASDAQ:MSFT) Teams platform.
The Bottom Line on ASAN Stock
In mid-February, Asana Chief Executive Officer Dustin Moskovitz purchased shares of ASAN stock. As the old adage goes, there are many reasons for insiders to sell stock, but only one reason for them to buy. That could lead investors to conclude that the company is set to deliver a strong earnings report in early March.
On the other hand, as Chris Tyler pointed out recently, ASAN stock is being heavily shorted right now. Although Tyler writes that this may be a time to buy, the stock’s recent performance brings to mind another adage: don’t fight the tape.
If the strength of the earnings report is based largely, if not exclusively, on revenue growth, it is likely not going to be enough to move the needle. Nevertheless, if ASAN stock continues to flirt with the $60 mark, it may present investors with an intriguing entry point.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.