Asana: Productivity SaaS For The Remote World

Summary

• Product led growth in a huge market sales leadership.
• Strong management team with a perfect blend of innovation and experience.
• Strong metrics-Growth, Margins, Sales Efficiency.
• Trading close to its 52 week high but still a long term hold.

Overview:

Asana is a work management platform that helps teams orchestrate work, from daily tasks to cross-functional strategic initiatives. Over 75,000 paying customers use Asana to manage everything from product launches to marketing campaigns to organization-wide goal setting. The platform adds structure to unstructured work, creating clarity, transparency, and accountability to everyone within an organization—individuals, team leads, and executives—so they understand exactly who is doing what, by when.

The company’s primary use cases include-Project management, Workflow management, Calendar, Remote teams, Productivity, Agile & Scrum.

Asana at a glance:

3.2+ M free activated accounts, 75k+ paying customers, 1.2M+ paid users, 190 countries

Asana story:

Strengths-

Huge opportunity: According to a survey conducted by McKinsey Global Institute of a broad set of knowledge workers:

• 28% of time is spent answering email;
• 19% of time is spent gathering information; and
• 14% of time is spent on internal communication.

Citing IDC data, the work management market that Asana addresses is expected to grow from $23B in 2020 to $32B in 2023. These statistics truly encapsulate the magnitude of the problem. This being said, I believe that Asana is playing in a crowded but incredibly huge market. According to the S-1, Asana has 3% penetration among addressable employees in their existing customer base, indicating a significant whitespace opportunity.

Strong Management Team:

Asana has the perfect blend of innovation and experience on its management team. Dustin and Justin have been able to attract incredible talent to both its management and executive team:

Alex Hood: Prior to Asana, Alex was a VP of Product Management at Intuit and led QuickBooks Online. Alex was also the VP of Product at TubeMogul, which is now Adobe’s Advertising Cloud, and held positions at the Nasdaq Stock Market; Prashant Pandey: Before joining Asana, Prashant started and led the Bay Area team building Amazon DynamoDB, a fully managed NoSQL database service. He also led engineering for mobile advertising start-up Vdopia and worked on storage systems at IBM Research; Dave King: Prior to joining Asana, Dave led the marketing teams at Percolate, Highfive, and Salesforce; Backed by incredible investors like Benchmark, Founders Fund, Y Combinator, and Manhattan Venture Partners.

Strong performance:

• Strong overall dollar-based net retention rate-
  • Overall: 2019-110%+, 2020-over 120%+
  • Customers who spent over $5,000 annually: 2019-115%+, 2020-125%+
  • Customers who spent over $50,000 annually:2019-140%+, 2020-140%+

• Sales Efficiency Ratio-Asana pays back its sales and marketing outlay in 10.5 months compared which equates to a 25% magic number. Asana’s magic number is lower than typical SaaS companies but better than other competitors like Smartsheet. But still the magic number being 25% is well below the industry average for publicly listed SaaS companies.

Source: Scale Studio

• High revenue growth and high margins-Overall revenue growth was 86% putting its 2020 revenue total to $142 M. Additionally, Asana has been able to achieve high gross margins.

• Like SaaS companies, Asana has high gross margins and the overall cost of revenues is increasing at half the rate of overall revenue growth which is a good sign.

Strong tailwinds due to COVID-19

Catalyst-COVID-19 has acted as a catalyst as remote work means teams are not in the same space to coordinate work. This 180-degree shift will leave teams scrambling to find new ways to maintain productivity. I see the overall growth in the market to accelerate with companies going fully remote(Examples: Move from in-person to fully remote work-Twitter, Square; Stripe-Fully remote since inception).

Strong product and sales strategies

Asana’s product has been able to cut through the noise and acquire customers through strong product innovations. The most recent being its recent integrations with Zoom, Slack, and Microsoft Teams which will lead to widespread adoption. In order to stay competitive Asana has been focusing on products that can be seen through its overall expenditure breakdown.

Source: Asana S-1 Analysis-Comparing One Productivity Powerhouse to Another by Tomasz Tunguz

Weaknesses-

Loss-making since its inception

The company strategy has given growth precedent over profitability since its inception. Additionally, Asana has really benefited from the COVID-19 tailwinds and overall growth is expected to claw back to a certain degree as months go by. This is definitely a risk but as big as it was in the case of DoorDash. Asana’s product is highly sticky, has substantial switching costs and overall customers are large corporations. This makes them far more likely to become profitable than any other startups due to very solid growth and efficiency metrics.

Competitive space

Workplace productivity software is definitely a crowded space with competitors like Atlassian's JIRA, Smartsheet, and Airtable. All these competitors are unique in their own ways but solve the same core problem of increasing efficiency. The overall product is helpful but none of them have major competitive moats. While many of them cater to similar problems, each has a specific carved out niche and a big enough market for all to survive and thrive in.

Valuation:

Currently, Asana is trading at $36.48($5.81 B in market cap) which is pretty close to its 52 high. I believe that the stock has upwards momentum which shows that the market is responding to its spectacular performance till now.

Asana’s 2021 revenue is expected to be $222 M in revenue. I believe that with the strong tailwinds for digital-first organizations and rapid adoption of technology, Asana will be able to still produce 50%+ revenue growth. This would put the company’s revenue projection to around $335 M, which would help reinforce the confidence of the market. I’m not sure where the stock price will end up considering the strong volumes brought in by retail investors but am highly optimistic for the long run.