What happened
Shares of Asana (ASAN 0.07%) crashed hard on Thursday, following Wednesday evening's release of fourth-quarter results. The stock bottomed out at a 27.5% decline just before noon ET, recovering to a 23.5% drop as of 3 p.m. ET.
So what
The reported results were actually quite decent. Top-line revenue rose 64% year over year to $112 million while adjusted net losses increased from $0.22 to $0.25 per share. Your average Wall Street analyst would have settled for sales near $105 million and a net loss of $0.28 per share. The maker of cloud-based project management tools also issued bullish guidance targets for the next quarter and fiscal year.
However, many investors expected even more. Asana's top-line result landed 6.4% above the analyst consensus, and that was the smallest margin of surprise in the company's publicly traded history. For example, Asana exceeded revenue expectations by 7% in the third quarter and 8.7% in the second quarter. While the pace of growth remains impressive, it's also slowing down to a meaningful degree. Wall Street responded with a plethora of downgrades and slashed price targets.
Image source: Getty Images.
Now what
Asana is shifting its business mix toward larger and more lucrative enterprise-class accounts -- and the effort is making a measurable difference. The number of clients with Asana deals worth more than $50,000 per year more than doubled from 397 in the year-ago period to 894 in the current report. Customer loyalty was also robust in the enterprise cohort as the average deal renewal in this class was worth 45% more than the expiring contract. That figure led the pack, ahead of a 30% dollar-based increase for $5,000 accounts and a 20% boost for Asana's deal renewals overall.
That effort is neither cheap nor easy, requiring serious investments in Asana's sales organization and support services. That's part of the backstory behind the moderating sales growth, along with the simple fact that it's harder to post big growth percentages from a $112 million revenue base than from the year-ago period's $68 million top-line platform.
The stock is costly at 26 times trailing earnings with negative earnings and cash flows, which is a deal-breaking issue for value investors. Some growth investors are also losing patience with the decelerating top-line figures. However, the modest financial miscues were made in the name of building a stronger long-term future around well-heeled enterprise customers.
In that light, today's brutal market response looks like an overreaction. Asana's stock was arguably undervalued a month ago, and now it's another 40% cheaper. That's a no-brainer buy in my book.
