Is Asana a bankrupt company or just a bankrupt stock?


Sproductivity software company hares Asana (NYSE:ASAN) have fallen 71% since hitting their all-time high at the end of 2021. The rapid fall in equities has coincided with a decline in technology and growth stocks in general, which are falling as investors adjust post- pandemics and the expectation of higher interest rates.

These macro factors hurt stocks, but the company performed extremely well. The question now is how Asana should trade its growth for cash flow to fund the business itself.

Image source: Getty Images.

Asana’s growth is staggering

Let’s start with the growth story. You can see Asana has grown insanely below, and in the recently released fiscal fourth quarter of 2022, the company said its revenue grew 64% to $111.9 million. In fiscal 2023, management expects revenue to grow another 49% to 51%.

ASAN Income Table (TTM)

ASAN Revenue Data (TTM) by YCharts.

This growth rate is incredible for any company, but it’s Asana’s growth that’s so impressive. The number of paying customers increased 28% over the past year to 119,000, and customers spending more than $50,000 per year increased 125% to 894. The company is adding customers to a fast-paced and quickly moves them up the revenue curve. This is exactly what you want to see from an inventory SaaS (software as a service).

Why investors are worried about Asana

It’s no surprise that a growing company like Asana loses money. But the scale of the losses is staggering, as you can see above. In the fourth quarter, net loss was $90.0 million and cash from operations was negative $39.3 million.

For fiscal 2023, management expects revenue of $527 million to $531 million and a non-GAAP (generally accepted accounting principles) operating margin of approximately -45%. Halfway through, that implies about $238.1 million in non-GAAP operating losses over the next year.

For perspective, the non-GAAP operating loss for fiscal 2022 was $157.1 million, or 42% of revenue. Thus, Asana management expects losses grow on an absolute and margin basis over the next year.

This is concerning because a company can only spend money to finance its growth for a limited time. Free cash burn is lower than non-GAAP operating losses (negative $87.6 million in fiscal 2022), so investors would like to see cash burn pick up soon. Free cash was $315 million at the end of FY2022, so Asana likely only has about two years of cash at the current burn rate, assuming it doesn’t raise capital. . Time is running out for cash flow recovery.

Why Asana stock is still a buy

There’s no doubt that Asana’s cash burn is a concern and if the problem gets bad enough, it will need to raise capital. But it’s also hard to ignore a company that’s growing so quickly.

I think management will be able to reduce expenses enough to continue to grow at a high rate and ultimately achieve positive cash flow. It might not happen for a few years, but when Asana starts to see revenue growth outpace expense growth, it could be a cash flow machine.

If that’s not enough, Founder and CEO Dustin Moskovitz bought over $1 billion worth of Asana stock at a higher price than today. If he’s bullish on the stock, so am I.

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Travis Hoium has no position in the stocks mentioned. The Motley Fool owns and endorses Asana, Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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