Revisiting ASANA | Q1 2022 and Q&A

I had a small ASANA position earlier this year, and then I exited before Q1 results. After reviewing the results in a bit more detail, I took a small position again a week or so ago.

I wrote up a deepdive on Asana in January 2021, before Q4 2021 and Q1 2022 numbers were released:

My key questions then were around the multi-billionnaire ex Facebook philanthropist CEO’s commitment to the company, the extremely large costs in the business relative to revenue - operating margin was going the wrong way and was at -63% in Q3 2021. And lastly that revenue seemingly was on a decelerating and not accelerating path as Q1, Q2 and Q3 qoq revenue growth in 2021 was lower than any previous year.

Since then the company posted some great results, which have assuaged my concerns to an extent.

Phoolio18 had this to say, and I tend to agree :…

He makes the point that revenue growth is accelerating and could come in at 73% yoy next quarter if they beat by a similar margin as they just did. That would be a step change.

I recap the results very briefly below and also some key questions from the Q&A:


Rev.	Q1	Q2	Q3	Q4
2019	14.3	17.6	20.6	24.3
2020	28.0	33.1	38.1	43.5
2021	47.7	52.0	58.9	68.3
2022	76.7

2019		23%	17%	18%
2020	15%	18%	15%	14%
2021	10%	9%	13%	**16%**
**2022	12%**				

What stands out for me, is the first 3 Q’s of 2021’s qoq revenue growth was slower than the year before, which was why I was worried about deceleration at that point in time. However Q4 2021 and now Q1 2022 is higher than the year before’s quarter, showing an accelerating trend now in its second quarter.


FCF	Q1	Q2	Q3	Q4
2020	-7.3	-6.5	-11.6	-19.2
2021	-17.1	-29.9	-19.5	-17.5
2022	**-7.7**			

FCF%	Q1	Q2	Q3	Q4
2020	-26%	-20%	-30%	-44%
2021	-36%	-58%	-33%	-26%

FCF is moving in the right direction, the lowest cash burn in two years, and at 10% by far the lowest as % of revenue ever.

Gross margins

GP%	Q1	Q2	Q3	Q4
2019		81%	82%	84%
2020	85%	86%	86%	87%
2021	87%	87%	88%	88%
2022	**90%**			

Gross martins for Asana are excellent, have shown an increasing trend for 3 years now, and is the highest by a long margin of any of my portfolio companies; with Upstart the closest at around 86%.

Operating margins

Op M%	Q1	Q2	Q3	Q4
2019		-64%	-53%	-46%
2020	-49%	-42%	-56%	-51%
2021	-50%	-52%	-63%	-51%
2022	-43%			

This is a gripe of mine with Asana - the huge level of spend resulting in operating margins around, and north of -50% of revenue, which is really very high. However, looking at this together with the other metrics in the business which points to a wide-open market and positive unit economics, makes me think that this could make sense for them. An analyst asked them about this, and they basically said that they are spending to land-grab and have no intention to stop in the short term (see Q&A below). Their “rule of 40” using FCF is now much improved as well vs prio Q’s, at 51% (61% revenue growth and -10% fcf margin), although, using operating margin it is still at a fairly low 18%.


NRR was 120% in Q1 of 2021 and 115% thereafter and also in Q1 of this year. However management sees this improving in Q2 and Q3 (see Q&A section below).


Cust	Q1	Q2	Q3	Q4
2020	66,000	71,000	73,000	75,000
2021	77,000	82,000	89,000	93,000
2022	100,000			

QoQ	Q1	Q2	Q3	Q4
2020		8%	3%	3%
2021	3%	6%	9%	4%
2022	**8%**			

This is the big one for me. Customer growth QoQ really took off in Q1, growing 8%; significantly above the 3% growth in Q1 of last year.

This momentum coupled with NRR acceleration should translate into revenue acceleration too.

Q&A Session

There were a couple of key questions and answers from the session, which bolstered my confidence, and which I highlight below.

Q: You saw a 10-point margin improvement, but you’re guiding to slight margin improvement for the year. Is seeing that, hey, you’re doing so well? Why take your foot off the gas and expense. We’re just going to keep on it given the reacceleration. Is that the overall theme? Or can you walk through that at?

A: That’s exactly it. Yes, Brent, this is Tim. Yes, that’s exactly it. I think we believe there’s just a huge market opportunity that we’re growing extremely fast, and we want to continue to grow and capture and continue to be the leader in this space.

→ This answer allays my opex fears to some extent. They believe that they have a tremendous opportunity ahead of them and are therefore running the business with these elevated cost levels. They have the ability to reduce their cash burn but are simply deciding not to take the foot off the pedal.

Q: Tim, I’m wondering if you see potential for that net dollar retention to improve above this 115% plus level as the economy reopens. Just based on your commentary, it sounds like you might anniversary past some of the pandemic period churn. And then perhaps you’d have SMBs getting healthier and employment picking up and expansion rates improving?

A: Yes. I would point to two things. I would say, one, because of the calculation, it’s a lagging our NRR calculation is a lag indicator. So once we lap, I would say, Q2, Q3, we expect our NRR to pick back up to pre-pandemic levels. And then the other thing I would say is what we’re seeing kind of in the cohorts and the customers that we’ve been acquiring that their adoption behavior is stronger than the kind of the pre COVID one. So this whole acceleration in terms of customers needing clarity, needing a work management product to do their work. So we think all those things will help bolster the NRR on a go-forward basis.

→ This is great. For him to say that Q2 and Q3 levels will be at pre-pandemic (around 120%) bodes very well; it means that their customer base is accelerating spending.

Q: So maybe first to Tim on the – it does feel like there’s kind of been a change on these wall-to-wall deals that you started seeing – you saw a couple of the last quarter, you’re seeing more of them this quarter. I want to talk about just what is the AHA moment in your customers that kind of makes those wall-to-wall deals possible?
And then with respect to the pipeline, how would you kind of categorize and classify it? Is it your sales teams have gotten better at selling the awareness of the category has been increased because of COVID, the competitive differentiation is better understood, just qualify it a bit for us in terms of what’s going on there?

A: Yes, I mean it’s all a natural part of the customer journey over time, right? So we tend to – with our self-serve business, seed organically in companies of all sizes. From there, our sales team engages in lands and expands. And from there, we tend to go wall to wall. And I would say that the beauty, the value and beauty of the data model and work graft and that map it creates is, the more users that deploy, the more value customers get and the more power they see from the platform. So we tend to land in a critical workflow spread cross-functionally is there, maybe to a whole department or across a couple of departments and then go all the while from there.
And then in terms of where we are on that journey, it’s just also a part of that growing up in companies. And again, we are 3%, 4% penetrated in our paying customer base. So there is so much expansion opportunity in front of us.

And I think the second question was around like the mix of like what’s going so well here. I can say like across the funnel, we’re seeing record volumes of interest, top of funnel. And our free to pay conversion rate is at an all-time high. Conversion rates, pipeline, ACV, customer adoption metrics are going up. Churn rate, customer sat and NPS scores are at or better than pre-pandemic level. It really is sort of growing across the board. And then in terms of the sales team, yes, we’re growing the sales team aggressively to ensure global coverage to take advantage of that demand.

→ So accelerating customer growth, accelerating NRR, lots of room to grow within the existing customer base and funnel KPI’s all pointing in the right, and accelerating direction. Looks good to me.

(Long ASAN, small position)