How I see Monday

How I see Monday

I have the feeling that, as with many of our companies, people “can’t see the forest for the trees.” What I mean by that is that (in my opinion) they can’t see the shape and health of the forest because they get lost examining every little tree, in other words they have a long list of metrics to satisfy and are looking for perfection on each of 10 or 20 details. They get lost in the details. No company can meet the 20 metrics you set out for it so there will always be things to be unhappy about.

Here’s what I see in Monday:

We have a company growing revenue at 75% per year. That’s basics, not details. Yes it’s down from over 100% growth at one point, but how many companies are growing at 75%? They are being very conservative in guidance because a lot of their business is in Europe which is in a certain amount of economic chaos at present due to Russia’s invasion of Ukraine, and the cut off of oil and natual gas to Europe, but all of that doesn’t mean that there is anything wrong with Monday, the company,or its business model. The invasion was in March, and they just grew at 75% in their April to June quarter, for gosh sakes!

Then we have their enterprise customers, customers spending over $50k per year, which are growing at 147% this quarter, and with a record number of new $50k customers (200 this quarter).

Now, it can be a little bit difficult to grasp what 147% growth means. It doesn’t mean they have 47% more of these customers than they had a year ago. It means that they now have roughly two and a half times as many $50k customers as they had a year ago. I’ve never before seen ANY company grow enterprise customers that quickly, or anywhere close to that quickly, and I doubt you have either.

Then there is their net retention rate. For the whole company it is over 125%. For companies with more than 10 employees it’s over 135%. (That means excluding the tiny 3 or 4 employee companies). And for their enterprise customers (over $50k), the NRR is over 150%.

They are also pivoting to making their Work OS into a platform, not just for collaboration but for doing just about anything.

They announced it a quarter ago and released four new products during this quarter: Monday Sales CRM, Monday Developers, Monday Projects, and Monday Marketer, all to work through Work OS. Customers can switch between them within Work OS. Although these products were released so recently, they already have over 1000 paying users. That’s pretty remarkable in itself.

This company has a consistent gross margin around 89% (!) which shows clearly that they do not need to give major discounts to get customers.

In the first quarter they had high operating expenses and an operating margin of -40%, very possibly due to the cost of producing and preparing to introduce all those new products. This quarter that had improved back to -12%.

After the first quarter they guided to 54% revenue growth for the year. This quarter they raised that guidance by 9 points to 63% (!). To me that says at least 70% by the end of the year. It’s impossible that they could average as low as 63% for four quarters with the first two quarters at 84% and 75%.

Finally, for a view from another source, Google’s President of Americas and Global Partners showcased Work Os’s momentum in his Keynote Speech at Google Marketing Live. There’s a link to his talk in Monday’s Investor Letter which came out with the earnings yesterday.

So that’s how I see Monday. I could be totally wrong but I bought some more this morning. It’s still only a 6% position and my smallest by far.

Saul

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Now, it can be a little bit difficult to grasp what 147% growth means. It doesn’t mean they have 47% more of these customers than they had a year ago. It means that they now have roughly two and a half times as many $50k customers as they had a year ago. I’ve never before seen ANY company grow enterprise customers that quickly, or anywhere close to that quickly, and I doubt you have either.

I do want to point out, and just to play devil’s advocate a bit (:P), that Monday is the only company I am aware of that measures this KPI using $50k customers instead of $100k. Maybe this is normal for the Work OS industry due to less revenue per customer but I do not track Asana, Smartsheet, etc so I can’t comment there. I thought it was worth flagging because it is a bit deceiving when every other company I’ve ever followed – i.e. Datadog, Cloudflare, ZoomInfo, Sentinel One, MongoDB, and Zoom – all report using $100k customers. And we can’t forget Snowflake who reports $1M customers! It certainly makes Monday’s growth look a lot more appealing. Regardless, this is fantastic growth (although steadily decelerating) across enterprise customers. I just wanted to raise this as it makes for an apples to orange comparison to other SaaS names we discuss here and I am sure many of them would have hit 147%+ growth if they reported a similar KPI.

Rex

P.S. Speaking of Zoom, they were growing $100k customers 160% YoY back in their glory days of Covid but this feels a bit like cheating :slight_smile: Let’s hope Monday doesn’t follow a similar path!

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Major Fool, I’m sure they use $50k because that’s what their chief competitor, Asana, uses.

I just wanted to raise this as it makes for an apples to orange comparison to other SaaS names we discuss here and I am sure many of them would have hit 147%+ growth if they reported a similar KPI.

Sorry Ron, but that is just total nonsense. To grow 147% you have you have have to have two and a half times as many customers of a size in one years time, whether you are talking $50k or $100k, and NONE of our companies have done that that that I heard of.

Saul

PS It’s easier if you use bigger rather than smaller customers because you can go from one to three $5 million customers and say you are growing at 200% but I don’t count that.

Saul

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I didn’t see this produced and shared previously but Monday’s earnings results presentation has been distributed…

https://seekingalpha.com/article/4534855-monday-com-ltd-2022…

The narrative and the visualisation of the numbers does seem to suggest that prior quarter’s bottom line disappointment appears to be the exception and standout against the ongoing trend of improving profitability.

Cheers
Ant

7 Likes

On August 25th monday.com announced that it has been named a 2022 Gartner® Magic Quadrant™ Leader for “Adaptive Project Management and Reporting”, along with 3 other businesses.

“Recognition was based on monday.com’s ‘ability to execute’ and ‘completeness of vision’”

https://monday.com/lp/gartner-magic-quadrant/

FYI, Planview is also a leader in Gartner Magic Quadrant for ‘Enterprise Agile Planning Tools’ and for ‘Strategic Portfolio Management’.

Monday.com has also mentioned its TAM to be about $56 Billion, and has highlighted 5 distinct segments it sees itself in.

$5B - Project Management
$14B - Marketing campaign management
$11B - CRM
$5B - Software Development
$22B - Collaborative applications.

see Page 9 of https://s29.q4cdn.com/881027206/files/doc_financials/2022/q2…

The Market is large for monday.com. They added 200 customers who spend 50K+ in ARR and their Net Retention Rate of this cohort is above 150% as has been previously mentioned.

I am holding 12% of my portfolio in monday.com, I see it as a boring business that enables ‘digital transformation’ for boring businesses, in 200 verticals, in 200 countries, in 14 languages, about 70% non-tech industries that love the simplicity of monday.com. I do think that simplicity of gluing business value streams is the secret ingredient in monday.com.

For the next Q3 they guided to revenue up to $131M, which would be a QoQ growth of almost 6%, The guide was in line with previous Qs (except the last Q2 where they guided to 9.7% growth and delivered 14% QoQ, beating almost 4%). Revenue from EMEA may be a bit soft, they warned it’s a headwind of 3% for the rest of the year (or just next Q). They have reiterated now several times that for every $1 they spend they make $4 in ARR, which is pretty good I think.

A quote from the shareholder letter:

“BigBrain is one of the
reasons that since inception, we were able to track
our cash flow and maintain efficiency, generating
more than $4 in ARR for every $1 in cash we burned.”

https://s29.q4cdn.com/881027206/files/doc_financials/2022/q2…

They playfully call it BigBrain but in reality it’s a good implementation of Business Intelligence tool, yeah, but BigBrain sounds fun ( and BigBrain could become a product for them to sell to their customers.)

Of course I may be completely wrong in holding this business but I look at it as an easy to understand business, a platform with distinct use case driven products on top of it, they just need to get more customers, and for that you need to do selling and marketing, and innoviation.

I like their engineering culture, the culture that Roy Mann and Eran Zinman are building and scaling at monday.com. The founders are front and center, they lead the company, every interview I’ve seen with them leaves me delighted, just like interviews with Matthew Prince of Cloudflare, or Oliver Pomel of DataDog.

Look, even ThoughtWorks is using monday.com https://monday.com/customers/thoughtworks

I think there will be many winners in this space of ‘digital transformation’ and I have high conviction that monday.com is one of them.

Thanks for reading my ramblings, Cheers!
Baconski

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