Asana Stock Is Soaring Today - Here's Why

B of A Securities analyst Michael Funk initiated coverage on Asana Inc ASAN with a Buy rating and a price target of $25.

Asana is a leading work management platform that helps teams orchestrate work, from daily tasks to cross-functional strategic initiatives.

Funk expects near-term choppiness in reported key metrics as Asana develops its enterprise go-to-market muscle.

Also Read: Asana Shares Tumble Despite Revenue Beat — 3 Analysts Deep Dive Into Q3 Print

However, he noted the company as a show-me story with an attractive risk-reward profile at current levels and recommended investors buy the stock ahead of positive estimate revisions.

Given the clear unit economics benefits, the company’s increasing focus on the enterprise market looks prudent, per the analyst. 

As the revenue mix increasingly shifts towards its base of enterprise customers, Funk said there should be a natural uplift to firm-level gross retention, ARPU/ACV, and expansion momentum. 

Incremental revenue generation should also increasingly skew toward renewal/expansion and away from new logo additions, contributing to greater S&M efficiency and profitability.

Funk’s analysis suggests that sentiment is bottoming. Investor confidence was shaken in 2023 as go-to-market challenges mounted and seat count rationalization within the tech vertical intensified. 

However, the risks are now well-understood, and he expects the key metrics to bottom in the first half of CY2024. 

Funk modeled revenues 3% and 6% above consensus for fiscal 2025 and fiscal 2026, respectively, reflecting his confidence in Asana’s ability to increase the traction of its top-down/enterprise sales motion.

Asana has significantly expanded margins over the last 18 months. 

He expects the company to exit fiscal 2025 with an adjusted operating margin 36 percentage points higher than fiscal 2023.

It has committed to delivering positive free cash flow by the end of the 2024 calendar, a goal he noted as beatable ahead of schedule.

Asana’s reinvigorated focus on profitability has made it significantly more investable in the current market environment.

However, its clear improvement in its financial profile has yet to be reflected appropriately in its valuation, as per the analyst.

Funk projects fourth-quarter revenue and EPS of $168.2 million and $(0.08)

Price Action: ASAN shares traded higher by 5.94% at $19.01 on the last check Monday.

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