Sales increase, inventory increases by 19%

Looking further ahead, sell-side analysts expect revenue to grow 9.9% over the next 12 months, slowing from the last three years. This forecast is disappointing and suggests that demand for the company’s products and services will moderate somewhat.

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Billings are a non-GAAP measure often referred to as “cash sales” because they show how much money the company has collected from customers during a specific period. This differs from sales revenue, which must be recognized in parts over the contract term.

Asana’s third-quarter billings were $176.8 million, and over the last four quarters, growth slightly lagged the sector, with an average year-over-year increase of 9.1%. This alternative revenue metric grew more slowly than total revenue, meaning the company is recognizing revenue faster than it is collecting cash – a headwind to its liquidity that could also indicate a slowdown in future revenue growth.

One of the best aspects of the software-as-a-service business model (and a reason they trade at high valuation metrics) is that customers typically spend more on a company’s products and services over time.

Asana’s net revenue retention rate, a key performance metric that measures how much money existing customers from a year ago are spending today, was 98.5% in the third quarter. That means Asana’s revenue would have declined 1.5% over the last 12 months if the company hadn’t acquired new customers.

Asana’s already weak net retention rate has fallen over the last year, suggesting that some customers are dissatisfied with its products, resulting in lost contracts and revenue streams.

Quarterly revenue exceeded a comfortable amount, and operating profit outperformed convincingly. We were also impressed by Asana’s upbeat EPS forecast for the next quarter and full year, which beat analysts’ expectations. Overall, this quarter was pretty solid. The stock rose 19% to $18.40 immediately following the report.

In fact, Asana had solid quarterly earnings, but is this stock a good investment here? We believe the latest quarter is just one piece of the longer-term business quality puzzle. Quality, combined with valuation, can help determine whether the stock is a buy. We cover this in our actionable full research report, which you can read for free here.