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Asana S-1 Analysis - Comparing One Productivity Powerhouse to Another

Asana filed their S-1 this week. Asana builds productivity and task management solutions. When they launched, their vision of eliminating email through task management made big waves in the market. Today, the company is a massively successful SaaS business and another example of the flywheel business model that creates demand at the individual user and leverages that interest to sell department and company-wide contracts.

Asana competes with SmartSheet, another publicly traded productivity company. In this analysis, I’ve compared the metrics of the two companies at the time of IPO. Also, I’m trying a new format for these analyses that you might call a baseball card analysis, rather than a series of charts. Let me know which you prefer.

Metric SmartSheet Asana
IPO Year 2018 2020
Customers 74,000 75,000
ACV 1503 2165
TTM Revenue, $M 111 142
Revenue Growth 66.1% 85.8%
Gross Margin 80.5% 86.1%
Net Income Margin -48% -83%
Operating Cash Flow Margin -12% -13%

Smartsheet went public in 2018. Since its IPO, Smartsheet has increased its market cap 2.6x to $6.3B today, which is a favorable omen for Asana.

At the time of IPO, Asana and Smartsheet had the same number of customers, about 75,000. Asana records a contract size advantage of about 44%, with an ACV of $2165. Each seat costs $118 per year or $9.83 per month on average.

At the time of IPO, Asana generates more revenue, $162M in revenue to Smartsheet’s $111M. Asana is also growing faster, 86% annual revenue growth vs. SmartSheet’s 66%. The cost of higher growth appears in the Net Income Margin delta. Asana generates about 2x the loss of SmartSheet as a percentage of revenue.

However, Asana’s cash flow margin from operations is 13 percentage points better, meaning customer pre-payment terms from customers and cash collections may be superior. Asana holds a 6 percentage point lead in gross margin, likely a benefit borne of modern software architecture and the cost advantages it brings.

Metric SmartSheet Asana
Net Dollar Retention 130% 120%
Sales Efficiency 0.92 1.15
Implied Payback Period, months 13.1 10.5
S&M Spend / Revenue 0.66 0.74
R&D Spend / Revenue 0.34 0.63

Examining SaaS ratios, we see Asana charts lesser net dollar retention than SmartSheet. In the S-1, Asana clarifies larger accounts expand more. Accounts worth $5k or more grow at 130% and accounts paying $50k or more expand at 140%. This data is consistent with the Redpoint survey that found median NDR is greater with bigger ACVs.

Asana’s sales efficiency or magic number is 25% better than SmartSheet, meaning Asana’s go-to-market requires one quarter less sales and marketing spend to acquire a customer. The inverse of this number, normalized for months, is the implied cost-of-customer acquisition payback period. Asana pays back its sales and marketing outlay in 10.5 months compared to Smartsheet at 13 months. This figure is burdened for gross margin.

Asana runs less profitably because of meaningfully bigger investments in both Sales & Marketing (S&M) and Research and Development (R&D). Asana invests 10% more of its revenue in S&M, which is consistent with its higher growth rate. But R&D spend is of a different magnitude. Asana spends almost 2x the percentage of revenue on R&D compared to Smartsheet: 64%. Of all the companies I’ve analyzed, this is the second largest to Hortonworks.

Company R&D Spend as a Percentage of Revenue
Hortonworks 78.7%
Asana 63.0%
Workday 46.1%
Atlassian 44.0%
Slack 39.3%

Notably, Slack and Atlassian also fall into the top 5, and both of these businesses are flywheel models as well, so there’s some precedent for this type of investment. In addition, the high sales efficiency should reassure skeptics that this technology investment has paid go-to-market dividends, as well as superior gross margins.

SmartSheet trades at 15x forward revenues as of this writing. Assuming a 15% decline in Asana’s growth rate and a similar valuation multiple, I would expect Asana to trade around $4B or higher. The company should fetch a premium for faster growth, better gross margins, and superior sales efficiency.

Congratulations to the entire Asana team on building a productivity powerhouse.