This week’s pair of direct listings from Asana and Palantir were historic moments for each firm, but they also served as public business experiments.
For Palantir, the event tested how far corporate governance could be twisted while leaving a company worth buying in the eyes of public shareholders. And with Asana, its direct listing was a test of what sort of tech company can go public using the mechanism.
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Asana is not as well-known as Spotify was during its famous direct listing, nor is it growing as quickly as Slack was when it also went public using the method. But Asana had charm of its own, including good growth. The question surrounding its debut was what sort of price it could secure given its rising losses and operating cash burn, and whether it would prove attractive enough to serve as a positive harbinger for yet-private SaaS startups.
How would investors react when it started to trade? Favorably, as it turns out.
Asana’s results augur well for other SaaS startups that may not find the traditional IPO process enticing but don’t want to wager their public debut on more exotic mechanisms like blank-check companies, especially the bulk of late-stage SaaS unicorns that are still cash-hungry and far from profitable on a GAAP basis.
Asana’s debut, then, is a lit torch for late-stage SaaS startups that have access to private cash and want to trade publicly.
A direct listing success
There was much to like in Asana’s IPO filing, along with a few cautionary notes. To avoid a full recap of our prior reporting, we’ll skate through only the most salient details as reminders.
Asana grew 63% in the six months ending July 31, 2020, compared to the same period of 2019, though that growth rate decelerated to around 57% when only looking at the most recent quarter and its historical analog.
Good growth then, if slowing. And Asana’s gross margins were good and improving, coming in at 86% in the six months ending July 31, 2019, and 87% in the same period of 2020.
But the company’s net losses were rising in gross and relative terms at the same time. In the six months ending July 31, 2020, Asana lost $76.9 million, up from $30.5 million in the same period of 2019. And, the company’s 77% net loss as a percent of revenue in the two quarters ending in July of 2020 was up from a 50% loss during the same period of the preceding year.
Asana also consumed more cash this year than last year, with its operating cash burn rising from $13.1 million during the six months ending July 31, 2019 to $40.3 million in the same period of 2020.
And yet, from a reference price of $21, valuing the company at around $4 billion on a fully diluted basis, shares of Asana have risen to $25.14 at the open of trading this morning (though Asana lost several points today thanks to general market carnage). Current market trackers value the company at $3.86 billion.
That’s more than double its final private price.
To solidify our general take that the company’s direct listing went well and shows that even lesser-known and cash-hungry SaaS companies can pursue the model, we’ll want a revenue multiple for the company. So, let’s get one:
- Asana July 31, 2020 quarter revenue: $52.0 million
- Implied ARR cognate: $208.1 million
- Current market capitalization: $3.86 billion
- Rough ARR multiple at today’s price: 18.6x
That’s dead-on for what the Bessemer Cloud Index describes as the current market average for companies like Asana. So its direct listing has revalued Asana to a multiple of its own valuation ($1.55 billion when it last raised private cash in a priced round), right into the current market norms. Which seems fitting, given that the company’s growth is strong but slowing at the same time its losses are rising.
So, two cheers for the SaaS direct listing. It worked! Of course, not every startup has a billionaire founder willing to lend it a few hundred million ahead of its debut, but there are other sources of cash out there.
My read is that the Asana direct listing was comfortably bullish, and if the president hadn’t gotten COVID-19 — which caused the markets to drop — the results would look even better this Friday morning.