Asana sold the rip. Is it time to buy the dip?

Project management and work collaboration software-as-a-service (SaaS) provider Asana Inc. NYSE: ASAN reported top and bottom line estimate beats and raised its Q4 guidance on its Q3 2023 earnings report. Investors expected a price gap up-and-go reaction to the strong report but instead were treated to a 20% stock price collapse. Weakening metrics may have contributed to the sell-off, but it could also be a sell-the-news event judging by its 16% run-up preceding its Q3 earnings release.

What does "sell the rip" and "buy the dip" mean?

When a stock makes a powerful rally, active investors and institutions will sell into strength as the stock is ripping higher, also known as sell the rip. When a stock dumps on a pullback, the same parties will buy the pullback, also known as buying the dip. Nearly 80% of the Fortune 100 companies use Asana. Clients include Amazon.com Inc. NASDAQ: AMZN, Proctor & Gamble Inc. NYSE: PG and Johnson & Johnson Inc. NYSE: JNJ.

Crowded industry

The work collaboration software providers are members of the Business Services sector. This is a crowded sector with well-known players, including Salesforce NYSE: CRM owned Slack, monday.com Ltd. NASDAQ: MNDY, Smartsheet Inc. NASDAQ: SMAR  and  Atlassian Co. (NASDAQ: TEAM). Even the behemoth Microsoft Co. NASDAQ: MSFT has Teams and Projects, which many view as the incumbent.

Asana offers a wide range of customization options for specific workflows. It also enables integration with many widely used business tools, including Gmail and Salesforce. Asana provides a robust mobile app on iOS and Android to manage workflows on the go. Check out the sector heatmap on MarketBeat.

Top and bottom line beats and YoY improvements in losses

On December 5, 2023, Asana released its third-quarter 2023 results for the quarter ended October 2023. The company reported an EPS loss of four cents versus consensus analyst estimates for a loss of 11 cents. GAAP operating loss was $63.4 million and 38% of revenue, an improvement from the GAAP loss of $101.1 million and 71% of revenues in the year-ago period. Net loss was $61.8 million and non-GAAP loss was $8.2 million. Again, an improvement over the GAAP loss of $100.9 million and non-GAAP loss of $52.4 million in Q3 2022. Revenues grew 17.7% year-over-year (YoY) to $166.5 million, beating analyst estimates of $164.09 million.

Highlights of Q3 2023

Asana grew its number of Core customers that generate over $5,000 annually by 14% or 21,346. Core customers spending more than $100,000 annually rose 18% or 580. The company ended the quarter with three million paid seats. Overall, dollar-based net retention was 100%, but Core customer net retention was 105%. The $100,000 or more Core customers' net retention was 120%. Asana also unveiled new artificial intelligence (AI) innovations powered by WorkGraph, including Smart fields, summaries, workflows, searches and digests.

Raising forecasts

Asana raised its Q4 2023 EPS for a loss of 10 cents to 9 cents versus consensus analyst estimates for a  loss of 16 cents. Revenues are expected to be between $167 million and $168 million versus $166.85 million. 

CEO Insights

Asana CEO Dustin Moskovitz noted that despite macroeconomic headwinds impacting its renewal base, he sees signs of stabilization. Awareness and demand for work management continue to expand, as evidenced by its growing customer base, which underscores the increasing global adoption of Asana, with over three million paid seats. Margins have improved 34% on a nine-month YoY basis. They are leveraging AI to embark on a new product cycle of innovation.

Moskovitz commented, "Unlike tools that are narrowly focused on individuals or specific teams and use cases, Asana maps the relationships across the entire company between individuals, teams, and the work they're trying to achieve, ensuring you get reliable, accurate, and trusted generative output." He continued, "Simply asking open-ended questions about all the training data used to train a foundation model yields results that aren't as useful, leading to hallucinations that decrease trust in and adoption of AI." Get AI-powered insights on MarketBeat.

CEO purchases

Asana's co-founder and CEO, Dustin Moskovitz, was a former co-founder of Facebook, now known as Meta Platforms Inc. NASDAQ: META. Moskovitz owns nearly 60% of the company. He has been acquiring more shares throughout October 2023. Moskovitz purchased $5.12 million of stock between $17.88 and $18.26 per share on October 12, 2023. Moskovitz purchased $6.24 million of stock on October 16, 2023, between $17.84 and $18.53 per share. Moskovitz purchased another $2.16 million of stock on October 23, 2023, at around $17.50. This brings his total stake to around 47.66 million shares.  

Asana analyst ratings and price targets are at MarketBeat. Asana peers and competitor stocks can be found with the MarketBeat stock screener.

Ascending price channel breakdown

The candlestick chart on ASAN illustrates the breakdown of its ascending price channel leading up to its Q3 2023 earnings release. The price gapped down through its daily market structure low (MSL) buy trigger at $22.15 and through its daily 200-period moving average support at $20.04. The daily relative strength index (RSI) fell towards the 40-band but is attempting to bounce from that level. Pullback support levels are at $18.55, $17.49, $16.18 and $15.71.