In a sliding market, Asana has defied the odds, trading up to $13.74 per share. Its 9.6% gain since September 2024 has outpaced the S&P 500’s 1.7% drop. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
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We’re happy investors have made money, but we're cautious about Asana. Here are three reasons why we avoid ASAN and a stock we'd rather own.
Why Is Asana Not Exciting?
Founded in 2008 by Facebook’s co-founder Dustin Moskovitz, Asana (NYSE:ASAN) is a cloud-based project management software, where you can plan and assign tasks to employees and monitor and discuss progress of work.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Asana’s billings came in at $209 million in Q4, and over the last four quarters, its year-on-year growth averaged 9.4%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Customer Churn Hurts Long-Term Outlook
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Asana’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 97.5% in Q4. This means Asana’s revenue would’ve decreased by 2.5% over the last 12 months if it didn’t win any new customers.
Asana’s already weak net retention rate has been dropping the last year, signaling that some customers aren’t satisfied with its products, leading to lost contracts and revenue streams.
3. Operating Losses Sound the Alarms
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Asana’s expensive cost structure has contributed to an average operating margin of negative 36.8% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if Asana reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.
Final Judgment
Asana isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 4.1× forward price-to-sales (or $13.74 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.
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