ASAN - Asana: The Growth Story Is Far From Over

2023-09-20 12:59:19 ET

Summary

• Asana continues to disrupt work collaboration with its intuitive, mobile-optimized platform that drives team productivity.
• Revenue growth has decelerated but is still top tier in the SaaS space.
• Asana co-founder Dustin Moskovitz is personally injecting capital into the company, enabling the continuation of growth investments and providing a backstop.
• AI capabilities like Asana Intelligence point towards higher-than-expected future growth estimates.
• Relative valuation and growth prospects in an ever-expanding market make ASAN an attractive investment at 6X Price/TTM Sales.

Investment Thesis

Asana ( ASAN ) has endured a challenging 2022, with its share price plunging nearly 90% from an all-time high market capitalization of approximately $30 billion. Macroeconomic headwinds and rising interest rates have severely impacted high-multiple software stocks over the last 18 months. Despite recovering some of these losses and returning over 30% year-to-date, Asana remains well below its former highs with a current market capitalization of under $4 billion. The company finds itself at the opposite end of the market pendulum swing and presents an intriguing opportunity for long-term investors to capitalize on Asana's growth prospects, both in its core work management market and new frontiers like artificial intelligence. Downside risk remains limited due to the deep pockets behind the company's leadership, and while the stock did face excessive optimism previously, the pessimism today ignores Asana's immense disruptive potential.

Company Overview

Asana operates in the massive and rapidly expanding collaborative applications and project management market set to reach $50 billion by 2025 . The company is disrupting legacy task management tools with its team collaboration and communication-focused platform. I personally use the product and have seen an enormous productivity boost ever since.

What sets Asana apart is its intuitive interface that makes collaborating on projects simple and seamless. Team members can easily track progress, assign tasks, set deadlines, and visualize workflows on interactive boards. This level of transparency and organization supercharges team productivity.

Another key differentiator is Asana's top-notch mobile experience that enables users to manage work on the go, allowing users to check project updates and make adjustments whether they're commuting or traveling. The mobile optimization and offline access provide flexibility that old legacy tools lack.

Asana also integrates seamlessly with popular work apps like Slack, Salesforce, and Dropbox. This interconnectivity with everyday business software creates a center point for managing work, which boosts adoption across organizations. Once companies get started with Asana, the platform stickiness keeps them on board. This is evidenced by the company's industry-leading 135% Net Dollar Based Retention Rate.

Yes, growth is decelerating from peak pandemic quarters. But 45% revenue expansion remains best-in-class for enterprise software, especially at the scale that it's operating at and the environment we're in right now. Asana is wisely investing aggressively in R&D and sales/marketing to maximize its window of opportunity for customer acquisition and market share gains.

Asana Has The Backing To Maintain Growth Investments

Asana's co-founder Dustin Moskovitz owns over 21% of the company and serves as CEO. His estimated $12 billion net worth (thanks to Facebook) provides patient capital and insulation from forced shortsightedness that other SaaS companies are hit with following a rise in the cost of capital. In Q2'23, Dustin injected over $350 million into Asana as part of a private placement, and he keeps buying shares hand over fist at a high frequency.

Unlike unprofitable SaaS peers reliant on fickle public markets, Asana can tap Moskovitz's resources like it has before when needed. This enables maintaining operating expenses to fuel growth despite rising costs of capital.

While other SaaS companies are forced to cut R&D spending to weather the storm, Asana will continue firing on all cylinders in developing and marketing its product. The backing of a billionaire founder with a long-term commitment gives Asana a strategic advantage in its investment timeline and provides somewhat of a downside protection.

New Frontiers: AI

Asana is supplementing its work management platform with cutting-edge AI capabilities through its new Asana Intelligence suite . Powerful features like Smart Tasks use machine learning to automatically suggest and assign tasks based on project goals. Asana Lens provides enhanced data visualization so managers can identify bottlenecks and optimize workflows. These AI tools aim to boost team productivity, collaboration, and work automation.

While still early stage, Asana Intelligence represents a key long-term growth driver as AI matures and becomes further embedded in its product experience. The company's investments today in augmented intelligence ensure it stays ahead of competitors and cements its position as an innovative leader in the future of work. Asana Intelligence has the potential to be a game-changer in propelling the next stage of hypergrowth.

Profitability Can Wait - The Window Is Now

Expanding total addressable market share rapidly is rightly prioritized over profitability. Capturing share now in a rapidly growing market builds significant competitive moats.

There will be time to cut back sales/marketing costs and raise prices to drive profitability later. But the growth window is open today - Asana is wisely choosing to maximize this opportunity, even if it delays near-term profits.

Once operating leverage kicks in at scale, margins can improve swiftly. Customer acquisition costs and R&D as a percentage of revenue will fall. Asana's 90%+ gross margins point to the potential earnings power later this decade if growth investments pay off.

Valuation Justified By Large TAM and Market-Leading Growth

Even after the plunge, Asana still trades at a seemingly expensive 6.4x TTM sales. But this valuation is justified by the $50 billion market opportunity and leading revenue growth rates.

Competitors like Monday.com and Atlassian trade at 12x and 15x 2023 sales respectively - both with slower growth in the 25-40% range. Asana deserves a premium multiple for its disruptive positioning, product edge, and growth trajectory.

Upside scenarios could see Asana hitting $4 billion in revenue by 2030 at a revenue CAGR of 30%. At just a 10x multiple, barely above slower-growing Old Tech stocks, this implies a 2030 valuation of $40 billion - nearly 10x above today's level.

The market is underestimating Asana's long-term potential. Revenue compounding at a 30% CAGR this decade can dramatically reshape the value proposition. Profitability will follow at an immense scale.

Macro Picture: Light at the End of the Tunnel for Tech

Rising interest rates and recessionary fears have battered Asana in 2022. But these are transitory issues that will pass. As inflation recedes, the Fed is likely to halt rate hikes. Future liquidity events could even reverse course back to easing. This would provide a tailwind to valuations.

The bottom line is Asana's business model is set to outlast near-term economic fluctuations. Work management and collaboration software will only become more critical in helping businesses operate efficiently.

Asana is the disruptive innovator best positioned to capitalize on this secular trend. Its growth story is still in the early chapters.

The market is focused on the wrong timeline, creating a long-term opportunity amidst the sell-off. Asana has its best days ahead as it maintains investment in a large and expanding market.

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