Asana Enterprise (NYSE: ASAN)
Price (as of 11/21/2021): $100.75
Market Cap: 18.54B
Asana–The Next SaaS Headliner?
Asana Enterprise was founded in 2008 by Facebook veterans co founder Dustin Muskovitz and engineering lead Justin Rosenstein. It’s one of the up and coming small cloud based companies riding on the hyper-growth wave of the software as a service (SaaS) trend. Asana is an emerging leader in the workplace and project management software industry and since its IPO in 2020, has seen its market capitalization swell from $4 billion to over $23 billion. As with most other SaaS companies, its revenue stream consists of product leasing via online subscription service in contrast to more traditional methods of software installation. Over the past year, Asana’s stock has shot up roughly 500% on positive quarterly revenue growth, and has beat analyst earnings expectations for the past 4 consecutive quarters. While investor sentiment may cool following such an incredible run-up, there are many long term growth factors for Asana over the next few years.
The potential market for Asana’s product is undoubtedly massive. Many companies–from 50 person development teams to trillion dollar software companies–require digital workplace management. The key product Asana offers is the Work Graph: a software which centralizes all the projects, tasks, goals, and milestones of a firm. Theoretically, this would save a company time otherwise spent on internal communication between groups and individuals; instead of time-consuming emails, briefings, and memos, workers can easily track real time work progress across group projects through Work Graph’s interface. Since its founding in 2008, many team collaboration tools such as Trello have emerged over the years, and Asana currently sits within a highly competitive playing field occupied by companies like Monday.com, Microsoft, ServiceNow, Workfront, Airtable, Planview, and Salesforce. However, in many cases, Asana is not in direct competition with these companies and has integrated its platform with various productivity tools offered by software companies such as Microsoft and Salesforce.
Asana expects its TAM to grow to $32 billion by 2023. In upcoming years, the project management software/service industry in the US is expected to expand significantly with a CAGR of 13%. Within the industry are advantages for first movers due to high switching costs for consumers. Companies that opt to switch software for their employees have to undergo retraining costs and periods of lost productivity in employee adjustment to new software. Thus, early user growth is crucial to building a robust business moat as most users will be unwilling to switch to other services. Over the past year, Asana has done well in consumer growth, significantly expanding the number of paying customers spending $5,000 or more on an annualized basis in 2020 by 53% to a total of 11,272 users. Notably, its most expensive subscription package–customers spending $50,000 on an annualized basis–has grown over 92% over the past year to 485. It was also with this group of customers which Asana saw its highest dollar based net retention rates at over 140%. In comparison with its peers, Asana offers a more attractive freemium model. Similar tools such as Wike, JIRA, and Trello, either don’t offer free subscriptions or the full functionality and flexibility of Asana’s product. When coupled with a conversion rate of 4.7% for premium subscriptions (compared to the industry average of 2.35%), many investors believe Asana is in a great position to expand its pool of potential customers.
Asana is a high risk investment given it is currently trading at a handsome valuation of 60x sales; second highest among its peers within this industry who trade on average 18x sales. Additionally, it is projected to not turn a profit for the next three years. However, much of the disparity in valuation is hidden behind extensive investments in R&D and sales/marketing which amount to 45% and 67% respectively of Asana’s top line. With a gross margin of 87% versus the SaaS industry average of 70%, Asana’s path to profitability appears to be relatively straightforward for tech investors. Currently, the numbers indicate that Asana’s leadership is heavily investing in user growth, retention, and conversion; a move which will solidify Asana’s competitive advantage in the long term. Over the last few years, Asana has landed major partnerships and added to users of its project management software an impressive list of big name brands which include the likes of Amazon, Google, Disney, Spotify, and Adobe. Recent insider buying also points to long term optimism; in September and October of this year, CEO Muskovitz purchased $123 million worth of stock at a price of roughly $100 per share.
Based upon growth opportunities and company fundamentals, Asana is a great long-term investment for an aggressive growth portfolio. However, given that it’s currently trading at inflated multiples and large swings in stock price are to be expected throughout the next year, Asana’s current stock price justifies a hold consensus.