Asana (Nasdaq: ASAN) went public via a direct listing on Wednesday. Direct listing allows the company to bypass the IPO process and lets them save time and expense by avoiding the underwriting process. The drawback is that a typical IPO leads to more demand and tighter control of supply.
Recent direct listings like Slack (WORK) and Spotify (SPOT) had underwhelming debuts and saw shares trade lower for an extended period of time until there was an equilibrium. In its early days of trading, Asana is down about 15%. Palantir (NYSE: PLTR) is also going public through a direct listing.
Company Profile
Asana makes communication and collaborative tools for the workplace. It's seen a big jump in engagement and user growth due to the coronavirus. It was started by ex-Facebook (Nasdaq: FB) founder Dustin Moskovitz. The company was based on an internal tool that Facebook built to help improve its workflow and make workers more efficient.
Asana's business is built around making these tools available to all businesses. In its S-1, Asana said that a disturbing amount of a company's work "is focused on work" rather than the key metrics which determine if a company is successful or not.
Its initial product is free, and it has a successful track record in terms of converting free users into paid users. It currently has 82,000 customers with 2.1 million paid users and 3.5 million free users. It's also been successful in increasing revenue per customer. It says that around 70% of the Fortune 500 uses its software.
The company estimates the total market size for workplace productivity and project management software to be around $35 billion this year and to grow to $48 billion by 2024. Companies are happy to pay for this software if it will lead to increased effectiveness and efficiency.
Stock Price Outlook
In its S-1, Asana also says that its software is the next-generation version of emails and spreadsheets. It believes that these are no longer the most effective ways to do business in this era.
Asana has a valuation of $4 billion. It currently has annual recurring revenue of $200 million with 85% revenue growth and 86% gross margins.
Given that it's a direct listing, investors should be patient. However, Asana's combination of "sticky" revenue, growth, and high-margins has consistently led to outperformance during the past, few years. There are few reasons to believe that this will change.
IPOs have been outperforming in this market environment especially software-based ones. Asana is likely to be another one.