Asana posts Q3 results, ponders impact of Adobe on enterprise work management

Phil Wainewright Profile picture for user pwainewright December 10, 2020
Asana beats growth expectations in Q3, sees enterprise opportunity ahead as Adobe closes acquisition of its competitor

Business team in cupped hands with digital transformation context  © nopporn - shutterstock
(© nopporn - shutterstock)

Work management vendor Asana yesterday reported its first quarterly results after becoming a public company in September. Its 55% growth rate pleased Wall St, which initially marked the shares up around 11% this morning (before pulling back later in the day), even though losses exceeded revenues as the company ramped up investment in sales expansion.

The fastest growth was in larger customers, a market the company has targeted in recent product announcements. Those spending at a rate of $50,000 or more per year more than doubled in the past year to 318, and as Chris Farinacci, COO and Head of Business pointed out in prepared remarks:

Four of our biggest customer expansions in the quarter were with Fortune 50 companies. This included expanding one of our largest customers to tens of thousands of seats.

Meanwhile, the broader cohort of those spending at a rate of $5,000 or more now represents 10% of the total paying customer base and 59% of revenues. Yet this still barely scratches the surface of the full potential in these accounts, as co-founder and CEO Dustin Moskovitz explains:

We're only 3% penetrated into the employees for existing customer base. So that's 97% seat expansion opportunity. And then we also think there's still a lot of opportunity to drive ARPU [average revenue per user] as well.

Q3 results in brief

That market, of course, is one that many others are targeting too, including the big guns of Adobe and Salesforce after their respective acquisitions of work management player Workfront and messaging platform Slack, announced in recent weeks. Moskovitz and Farinacci explained Asana's strategy for holding its own in this market in a call with Wall St analysts last night — more on that below. First here's a quick run-through of the results:

  • Q3 revenues of $58.9 million, up 55% on the same quarter a year ago.
  • Q3 GAAP operating loss was $61.9 million, or 105.1% of revenues, compared to $63.1 million and 165.7% of revenues a year ago. The non-GAAP equivalent was $37.3 million (63.3%), versus $21.5 (56.3%) a year ago.
  • Cash flows for the quarter were negative at $34.4 million, compared to $10.9 million a year ago. Free cash flow also worsened, to negative $19.5 million from negative $11.6 million a year ago. Cash holdings stand at approximately $424 million.
  • Over 89,000 paying customers, an increase of around 7,000 from the prior quarter (almost as many as in Q1 and Q2 combined, thanks in part to lower churn), with an overall dollar-based net retention rate of over 115%.
  • Customers spending $5,000 or more on an annualized basis grew to 8,938, an increase of 58% on a year ago. Revenue growth from these customers was up 80% on a year ago, and the dollar-based net retention rate for this cohort was over 125%. These customers represented 59% of Q3 revenues, up from 51% of revenues a year ago.
  • The number of customers spending $50,000 or more on an annualized basis doubled to 318, up 104% year over year. Here, the dollar-based net retention rate was over 140%.
  • The company raised its guidance for the full fiscal year. It now expects revenues of $220.6 million to $221.6 million, representing year-over-year growth of 55%, with non-GAAP operating loss pegged at around $130 million.

So what of the incursion of Adobe and Salesforce onto Asana's turf? First of all it's confirmation that Asana is on the right track, says Farinacci:

We see that as validation of the category, that large-cap tech companies are taking note of the business imperative, the problem we solve, and hearing it from their customers.

Moskovitz was happy to congratulate Salesforce and Slack on their deal, pointing out that not only does Asana use Salesforce and Slack, but both companies use Asana. There are three major categories in collaboration according to Asana's worldview — content, communication and co-ordination. Asana focuses on co-ordination, and therefore works happily alongside Slack's communication role.

Adobe and the marketing function

Workfront on the other hand is also focused on co-ordination and therefore directly competes with Asana. Like Workfront, Asana often lands first in an organization's marketing function — "the plurality of landings, not the majority," says Moskovitz. But that's largely because marketing has such a desperate need for a digital aid to co-ordinating teamwork. As Farinacci explains:

Unlike some other functions, marketing teams do not have systems of record for these business processes. So for events and campaigns and product launches and those kinds of things — until what we're doing with work management — there were no standard tools for that. So it's just super greenfield.

Asana already partners with Adobe and expects to continue to focus on marketing and creative use cases even after the Workfront acquisition closes. But it's also focused on extending its reach into other functions across the enterprise, including sales, operations, product design, HR and IT. Several capabilities play into that expansion, including the ability to "multi-home" tasks in different workflows that various participants may be involved in, a feature that Moskovitz says helps to ensure "a cycle of chaos is avoided" at the vast majority of its larger customers when processes cut across functional boundaries.

Asana's ambition is to co-ordinate teamwork across the enterprise and believes that the market for its offerings remains wide open. Farinacci elaborates:

The vast, vast, north of 90% of information workers in the world don't yet have solutions. They're doing this manually. So the way they're trying to get clarity for their teams and align their teams is with spreadsheets, meetings, sticky notes and email threads. That's why the business imperative for, the need for, clarity and alignment real-time of who's doing what, when, is just growing at a time when no one's ever really had it before other than manually. I think that's overall what's driving the opportunity, and what has us so excited.

My take

As I've said before, you can't fault Asana for ambition. Can this $200+ million-a-year business really hold its own against the likes of Adobe, Salesforce, Microsoft, Google, ServiceNow, Atlassian, Zoom and so many other players in the surging digital teamwork landscape?

One factor in its favor is its focus on co-ordination of teamwork rather than simply settling for being a content or communications player. In diginomica's collaborative canvas of digital teamwork we identify four rather than three teamwork patterns, but the model is very similar to Asana's worldview — what Asana sees as co-ordination, we split into workflow and application integration. We also highly rate the intelligent measurement of digital teamwork against goals, which Asana sees as a priority for product development. That focus is shared by Workfront and Atlassian but few others at present.

The acquisition of Workfront by Adobe could pan out in one of two ways. Adobe may well decide that there's enough potential in the marketing field without thinking about expanding into other functions, clearing the path for Asana to expand further. Or it may see big potential in Workfront's ability to expand its reach beyond the marketing function and become a direct rival to Asana across the enterprise. Which way that decision goes will clearly have a direct impact on Asana's enterprise ambitions — the Workfront deal closed on Monday so we'll soon find out.

A grey colored placeholder image