Asana Stock Slumps as Software Maker Warns of Retention Headwinds

Shares of Asana (ASAN) dropped 12% in premarket trading Wednesday, a day after the work management software maker warned that its net retention rate could take a hit in the second quarter.

After the bell Tuesday, the company reported adjusted earnings per share of $0.05 on revenue that increased 9% year-over-year to $187.3 million, both just above Visible Alpha consensus.

Asana’s Q1 net retention rate (NRR) was 95%, while analysts were looking for 96%.

In Tuesday’s earnings call, CFO Sonalee Parekh said the company expects Q2 NRR to be “pressured,” because of a “combination of continued downgrade pressure, particularly in our enterprise and middle-market segments and the technology vertical.”

CFO Says NRR ‘Will Remain a Headwind’ in Near Term

Parekh said that Asana is confident it will improve its NRR in the long run, but noted that in the near term the metric “will remain a headwind, which results in strong new business momentum and scaling contribution from add-ons and the channel being less prominently reflected in our overall revenue growth.”

COO Anne Raimondi said the company is “beginning to see some increased buyer scrutiny and elongation in decisions related to broader consolidation or software stack transformation efforts.”

The quarter was Asana’s first posting a positive adjusted operating margin, leading the company to lift its full-year forecast for the metric to 5.5%, up from 5% previously.

Asana shares entered the day down about 6% on the year, having mostly recovered from the drop that followed last quarter’s report, when the company announced co-founder CEO Dustin Moskovitz would be stepping down as soon as a new chief executive was named. Asana said then that Moskovitz would continue as board chair and planned to retain his shares.