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Better Tech IPO: Palantir Technologies vs. Asana

By Leo Sun – Oct 5, 2020 at 12:45PM

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Which direct listing is a more compelling investment opportunity?

Palantir Technologies (PLTR 4.25%) and Asana (ASAN 6.17%) both recently went public via direct listings, meaning they sold their existing shares to investors without raising new funds instead of filing traditional IPOs. Both stocks started trading on Sept. 30, and surged from the initial "reference prices" set by the NYSE.

Palantir, which had a reference price of $7.25, closed at $9.50. Asana, which had a reference price of $21, closed at $28.80. Those initial gains were impressive, but should investors chase either high-growth tech stock right now?

An investor checks a stock price on her PC and tablet.

Image source: Getty Images.

What do Palantir and Asana do?

Palantir's data mining platform gathers information from disparate sources to assess myriad risks, threats, and opportunities. Its government-oriented platform, Gotham, generates over half its revenue and holds contracts with the U.S. military, FBI, CIA, ICE, and numerous other agencies. Gotham's AI platform, Ava, keeps those agencies on the same page.

In its S-1 filing, Palantir boldly claims it will become the "default" operating system of the U.S. government. The rest of Palantir's revenue comes from Foundry, the enterprise-oriented version of its data mining platform. It currently serves 125 customers across the public and private sectors.

Asana's platform helps teams organize, track, and manage their work on a unified platform. Its tools enable teams to create projects, delegate tasks, set deadlines, and directly communicate with each other. It can also be integrated with email apps like Outlook and Gmail, other collaborative platforms like Microsoft Teams and Slack, and cloud services like Salesorce with APIs.

Asana serves over 82,000 paying customers worldwide, including nearly a third of the Fortune 500. Its top clients include Alphabet's Google, PayPal, and even NASA.

How fast are these companies growing?

Palantir's revenue rose 25% to $742.6 million in fiscal 2019, with 35% growth in Gotham and 17% growth in Foundry, while its net loss narrowed slightly from $580 million to $579.6 million.

Members of the military check a computer.

Image source: Getty Images.

In the first half of 2020, Palantir's revenue rose 49% year-over-year to $481.2 million, with 76% growth in Gotham and 27% growth in Foundry, as it reaped the benefits of a new Army contract and gained new enterprise customers.

Its net loss narrowed year-over-year from $280.5 million to $164.7 million. It expects its revenue to rise 42% to $1.06 billion this year.

Asana's revenue rose 86% to $142.6 million in fiscal 2020, but its net loss widened from $50.9 million to $118.6 million. In the first half of fiscal 2021, its revenue rose 63% year-over-year to $99.7 million, but its net loss widened again from $30.5 million to $76.9 million. Its non-GAAP net loss also widened from $27.1 million to $50 million.

On the bright side, Asana's dollar-based net retention rate remained above 115% in the second quarter. A net retention rate above 100% is already considered sticky, so Asana's platform is clearly locking in its customers. Its number of customers spending over $50,000 annually also rose 160% year-over-year during the quarter.

For the full year, Asana expects its revenue to rise 47%-49%, but for its non-GAAP earnings to remain in the red.

Which stock is cheaper relative to its growth?

Palantir and Asana are both valued at about 19 times this year's sales, which makes them cheaper than many other recent tech IPOs. But Palantir is generating accelerating revenue growth with narrowing losses, while Asana is experiencing decelerating revenue growth with widening losses.

Based on those facts, Palantir looks cheaper than Asana, but some investors might be avoiding the company due to its controversial reputation and its overwhelming dependence on government contracts.

Asana lacks that controversial baggage, but it faces a lot of indirect competition from work management players like Smartsheet, other collaboration players like Atlassian, and diversified tech giants like Microsoft and Google.

The winner: Palantir

I recently highlighted Palantir as my top tech IPO to buy in October, and I think it's a more compelling investment than Asana. Asana's platform is sticky and shows promise, but I'd like to see some tighter financial discipline before I consider buying any shares.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Palantir Technologies Inc. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, PayPal Holdings, Salesforce.com, Atlassian, and Slack Technologies and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Asana, Inc. Stock Quote
Asana, Inc.
ASAN
$25.31 (6.17%) $1.47
Palantir Technologies Inc. Stock Quote
Palantir Technologies Inc.
PLTR
$8.59 (4.25%) $0.35

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