IPO Preview: Asana Begins Direct Listing Effort

IPOStreet

Asana (ASANA) intends to perform a direct listing of its Class A common stock, according to an S-1 registration statement.

The firm provides enterprise collaboration and workflow management software globally.

ASANA is growing rapidly but producing high operating losses and operating cash burn.

San Francisco, California-based Asana was founded to develop business collaboration tools to enable users to more effectively work across geographies and throughout the organization.

Management is headed by co-founder, president and CEO Dustin Moskovitz, who was previously co-founder of Facebook (FB).

Below is a brief overview video of the firm's vision of the future of work:

Source: Asana

The company’s primary use cases include:

  • Project management
  • Workflow management
  • Calendar
  • Remote teams
  • Productivity
  • Agile & Scrum

Asana has received at least $250 million from investors including Benchmark Capital, Generation IM Climate Solutions and The Founders Fund.

The firm acquires smaller customers through a self-serve website that provides them with the option of a free trial.

Asana has a direct sales force for middle-market and larger enterprise prospects.

Sales and Marketing expenses as a percentage of total revenue have been rising as revenues have increased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, dropped to 0.5x in the most recent reporting period.

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth trajectory. ASANA’s most recent calculation was 10% as of the three months ended April 30, 2020, so the firm needs improvement in this regard.

Asana’s dollar-based net revenue retention rate was 120% for fiscal year ended 2020, rising from 110% for the previous fiscal year.

A retention rate figure of greater than 100% indicates the firm is increasing its revenue from the same customer cohort over time, showing that it has achieved strong product market fit and sales & marketing efficiency, so Asana is performing quite well in this regard and actually improving markedly in the most recent full-year period.

According to a 2019 market research report by MarketsAndMarkets, the global market for enterprise collaboration was an estimated $31 billion in 2019 and is expected to reach $48.1 billion by 2024.

This represents a forecast CAGR of 9.2% from 2019 to 2024.

The main drivers for this expected growth are expected to include increased usage of mobile devices by mobile workforces, growing use of social networking websites and, more recently, the lingering effects of distributed workforces due to the Covid-19 pandemic.

Also, the managed services segment is forecast to produce the highest CAGR due to their ability to reduce operational costs, required infrastructure and IT department constraints.

North America is expected to account for the largest demand through 2024, as the chart below shows:

asanamkt

Major competitive or other industry participants include:

  • Slack Technologies (WORK)
  • Trello
  • Monday.com
  • Atlassian (TEAM)
  • Smartsheet (SMAR)
  • Wrike
  • Microsoft (MSFT)
  • Airtable

Asana’s recent financial results can be summarized as follows:

  • Sharply increased topline revenue
  • Growing gross profit and gross margin
  • Reduced operating losses and negative operating margin
  • Increasing cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

asanapl

Source: Company registration statement

As of April 30, 2020, Asana had $331.5 million in cash and $331.5 million in total liabilities.

Free cash flow during the twelve months ended April 30, 2020, was negative ($60.1 million)

Asana intends to perform a direct listing of its Class A common stock.

Class A common stockholders will be entitled to one vote per share and Class B shareholders will be entitled to ten votes per share.

Existing Class A shareholders may choose to sell their shares to the general public in the direct listing.

Management says it will use the net proceeds from the direct listing as follows:

Registered Stockholders may, or may not, elect to sell shares of our Class A common stock covered by this prospectus. To the extent any Registered Stockholder chooses to sell shares of our Class A common stock covered by this prospectus, we will not receive any proceeds from any such sales of our Class A common stock.

Management’s presentation of the company roadshow is not available.

There are no bookrunners of the direct listing; identified advisors include Morgan Stanley, J.P. Morgan, Credit Suisse and Jefferies.

Commentary

Asana is attempting to conduct a direct listing of its stock, so won’t receive any proceeds and is essentially acting as a facilitator for any Class A shareholders who wish to sell their stock on the open market.

The company’s financials show strong topline revenue growth but still high operating losses and operating cash burn.

Sales and Marketing expenses have risen as a percentage of growing revenues; its Sales and Marketing efficiency rate has dipped slightly.

The market opportunity for workplace collaboration software is large and expected to grow enviably over the coming years, as firms connect employees throughout their geographic footprint.

Also, the Covid-19 pandemic has increased the demand for electronic collaboration tools such as those from Asana, so the firm is well positioned to take advantage of demand from companies of all sizes.

As to valuation, Asana’s most recent private financing enterprise value in 2018 was approximately $1.6 billion, as the chart shows here:

asanavalue

Source: SharesPost

It is likely management will seek to find a floatation price that is significantly higher in valuation than the most recent $8.18 per share price.

As it gets closer to the listing date, the firm will hold an ‘investor day’ to provide further information and get a better idea of investor supply and demand for shares, ultimately settling on an opening price in conjunction with the designated market maker [DMM].

When we learn more information about management’s pricing expectations, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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