What a brutal six months it’s been for Asana. The stock has dropped 41.6% and now trades at $13.91, rattling many shareholders. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Asana, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Asana Not Exciting?
Even with the cheaper entry price, we're swiping left on Asana for now. Here are three reasons why we avoid ASAN and a stock we'd rather own.
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 $174.8 million in Q1, and over the last four quarters, its year-on-year growth averaged 4.3%. This performance was underwhelming 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 96.3% in Q1. This means Asana’s revenue would’ve decreased by 3.7% over the last 12 months if it didn’t win any new customers.
Asana has a weak net retention rate, signaling that some customers aren’t satisfied with its products, leading to lost contracts and revenue streams.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Asana’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. This inefficiency partly stems from its focus on enterprise clients who require some degree of customization, resulting in long onboarding periods that delay customer spending.
Final Judgment
Asana isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 4.1× forward price-to-sales (or $13.91 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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