What a time it’s been for Asana. In the past six months alone, the company’s stock price has increased by a massive 75.6%, reaching $21.99 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Asana, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.Despite the momentum, we're sitting this one out for now. Here are three reasons why you should be careful with ASAN and a stock we'd rather own.
Why Is Asana Not Exciting?
Founded in 2008 by Facebook’s co-founder Dustin Moskovitz, Asana (NYSE: ASAN) is a cloud-based project management software, where you can plan and assign tasks to employees and monitor and discuss progress of work.
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 $176.8 million in Q3, and over the last four quarters, its year-on-year growth averaged 9.1%. This performance slightly lagged the sector 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 98.5% in Q3. This means Asana’s revenue would’ve decreased by 1.5% over the last 12 months if it didn’t win any new customers.
Asana’s already weak net retention rate has been dropping the last year, 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.
It’s very expensive for Asana to acquire new customers as its CAC payback period checked in at 116.5 months this quarter. This inefficiency partly stems from its enterprise customers, who require long onboarding periods before they get up and running with the software, delaying Asana’s returns.
Final Judgment
Asana isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 6.4× forward price-to-sales (or $21.99 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward The Trade Desk, the nucleus of digital advertising.
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