MNDY was fine - your expectations are not

Investment Analysis Clubs Saul’s Investing Discussions
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MNDY grows another 90%, hits $300m for the full year.
https://seekingalpha.com/news/3803595-monday-com-non-gaap-ep…

Number of Customers with $50k ARR grew 200%. These are the customers that matter.
(their total customer growth numbers get warped by the smallest user cohort)

Adjusted FCF improved y/y
Net dollar retention rate for customers with more than 10 users was over 135%.
They guide to 73% for Q1 and 54% for 2022 full year.

They seem to know the beat and raise game. That looks like 70-80% y/y growth.

The idea that companies had consistently grow their GROWTH rate in perfect linear fashion and in constant fashion is something I have seen this board get fixated with. DDOG didn’t do that in the past.

If you can only invest in stocks that never have decreasing q/q or y/y growth rates then you will quickly have no stocks to invest in.

How 70% y/y growth became bad is a head-scratcher, to me.

Not counting the premarket number, but they were at $177 price and $7.75b mkt cap, with $308m/rev that is a TTM P/S of 24. I will assume 70% growth this year, finishing about $500m in 2022, for a forward P/S of 15. Obviously if their share price in premarket holds, those numbers get even lower.

How many companies can you find actually forecasting growth for a full year over 50%? The list gets small quickly.

Just my 2 cents.

Dreamer

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The problem is not just the slowing growth. This year non-Gaap operating loss was $52.6m (-17%). They are guiding to operating loss of $145m (-31%)!! Oof.

Do you think the market in its current state is going to like that? This isn’t a case of expectations being too high. This is a case of terrible & worsening operating margin guidance along with decelerating revenues and for a company selling a product that seems to be in a highly competitive sector.

Bnh

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The problem is not just the slowing growth. This year non-Gaap operating loss was $52.6m (-17%). They are guiding to operating loss of $145m (-31%)!! Oof.

Saul stated he had more confidence in MNDY than just about any of his companies.
Pretty sure that Saul knew they weren’t profitable.

https://discussion.fool.com/my-portfolio-at-the-end-of-jan-2022-…

SNOW isn’t exactly profitable either, nor was CRWD, etc etc

Dreamer

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SNOW isn’t exactly profitable either, nor was CRWD, etc etc

To prevent any misconception, SNOW’s operating margins just turned positive (and improving rapidly); and CRWD is very profitable.

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To prevent any misconception, SNOW’s operating margins just turned positive (and improving rapidly); and CRWD is very profitable.

CRWD has fallen out of favor here, largely. When it was in favor, it was not profitable (certainly by GAAP standards) and people were fine with that.

That was my point.

MNDY just announced new products and a move to a “suite” format.
Mgmt said guidance was conservative and even used the word hypergrowth.

They are investing even more in headcount. “accelerating hiring”
They are reinvesting in f2f in-person conferences, which they had been unable to do during covid and even recently due to omicron.
I don’t know that I agree with superbowl ad spending, but as mgmt stated, it is about jumping to the next-level of brand recognition in the world.

Pretty obvious, listening to this call, that mgmt is investing and focused on growth and is sandbagging with their guidance.

Dreamer

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SNOW isn’t exactly profitable either, nor was CRWD, etc etc

SNOW reported positive non-GAAP Operating profit +3% during their last Q, and the Q4 guide was for positive operating profits.

The top tier SaaS/cloud software businesses discussed and owned here (DDOG/NET/CRWD/SNOW/ZS) in big allocations are all firmly profitable on a non-GAAP basis. DDOG is even showing GAAP profits now. These are the companies that aren’t being massacred when they report earnings.

Bnh

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Don‘t like the answers of management on fcf/operating margin at all… sounds very wishy washy how we use to say in germany. With heavy investing in new products, ramping up hiring, expanding into new markets - why are they anticipating rapidly decreasing revenue growth?

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comparing companies at different stages of size doesn’t make sense.

Here is DDOG at same size at MNDY, roughly:

https://seekingalpha.com/article/4306052-datadogs-ddog-ceo-o…

“I would now like to turn to our outlook for the fourth quarter and the full year of 2019. Beginning with the fourth quarter, we expect revenue to be in the range of $101 million to $103 million, which represents a year-over-year growth of 65.5% at the midpoint. Non-GAAP operating loss from operations is expected to be in the range of negative $6 million to negative $8 million.”

This is getting off track.
But you have proven that expectations are out of whack. Thanks for that.

Dreamer

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It’s become very obvious over the last few months that much of the board’s conviction is based on price action. If Monday was UP 20% premarket with the same earnings, people would be talking about the company’s hypergrowth instead of its operating losses.

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Analysts are complimenting them on the FCF, which was positive.

As for increasing expenses going forward, yeah, they seem a bit wishy washy. Talking about spending a lot on trade shows and in-person marketing they couldn’t do during COVID. Also going on a hiring binge, which they wouldn’t do if they weren’t growing so fast, obviously. Management also saying they saw positives coming from their Super Bowl ad in terms of brand recognition, and that they see huge opportunities for new business and are going to spend to grab market share.

Also, interesting that 70% of their new business is coming from companies that have no workflow OS and helping them integrate their various tools.

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I have no problem with anything I’m seeing in the numbers.

As for the massive spend, this is the right time to do it, IMO. Their brand equity is on the rise after investing in a Super Bowl ad; offices may be opening back up in critical mass as the pandemic woes ease; their products are moving into the kind of suite-like territory that can be really sticky, esp with mid-size businesses who can’t deal with complicated stacks; and since one of the few worries with them we hear is how competitive their space is, seizing the moment and upping the burn rate on both R&D and marketing sounds like they intend to compete – and win plenty of market share.

Sure, it’s frustrating to watch the stock sink this morning in pre-market, but that’s Wall Street for you. It’s also an opportunity to pick up more shares, so excuse me while I go do just that.

-Pete

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Momentum is a dirty word around these parts of town. Even if the momentum is business related.

When the music stops, people leave and look for a different party.

The key is to squeeze as many quarters of accelerating revenue growth as you can before finding the next one.

The issue is that 80,90% growth is not sustainable for the long term. Hyper growth eventually turns into growth.

It’s just finding that ‘sweet spot’ EARLY on the upside that many seek. It could be 3 months or 2 years.

Sometimes I feel bad when companies get “shamed” on this board for only growing at 30-40%. But in the real world, that is still impressive to me. Especially if it can be sustained for extended periods.

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The question investors, I think, are asking: Was Monday’s growth a pull forward from Covid and are we going to see decreasing trends and possible churn in the future? Is the ramp up in spending trying to recapture that growth, or as CEO said on earnings call, are they cranking up the spend because their earnings and cash flow were better than expected, and they want to put that money to work in the continued land grab? I think only time will tell what the true story is, but the guide for 2022 is spooking investors into thinking the former.
Jille

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The question investors, I think, are asking: Was Monday’s growth a pull forward from Covid and are we going to see decreasing trends and possible churn in the future? Is the ramp up in spending trying to recapture that growth, or as CEO said on earnings call, are they cranking up the spend because their earnings and cash flow were better than expected, and they want to put that money to work in the continued land grab? I think only time will tell what the true story is, but the guide for 2022 is spooking investors into thinking the former.
Jille

I am not really sure what covid had to do with MNDY growth, tbh.
The products, as I understand them, are more about replacing older/less collaborative tools (sharing spreadsheets via email, as an example). This can also be thought of as a play in the low-code/no-code space, which seems to be a top CxO buzzword/desire these days.

https://www.forrester.com/blogs/category/low-code-platforms/…
https://www.gartner.com/en/newsroom/press-releases/2021-02-1…

It doesn’t matter if I am in the next row of cubicles, another city, or another country - improving efficiency and productivity is a positive for companies. In a real sense, it saves them money in the long run, too.

I thought this was a good primer, not just on Monday, but also in comparison to Asana:
https://seekingalpha.com/article/4472314-monday-vs-asana

The concept:
As the modern enterprise undergoes full digitization to the cloud, many corporations appear to be turning away from sticky notes, pen & paper, and manual project management software to more fully automated, easy-to-use project management and workflow systems to capture all that information on the cloud.

Asana and monday.com are platforms that help modern enterprises and organizations with Project and task management, Status tracking, Calendar views, Organizer, communication, and Team Collaboration. Increasingly, these companies have introduced more low-code/no-code features for enabling the building of applications on their platforms, they have added more automated features and are gradually moving into more Customer Relationship Management and campaign management aspects of the organizations.

The biggest difference from my research is that MNDY has more automation features and they just introduced a new product called Workdocs (to be discussed later). monday.com appears to have more low-code/no-code application building capabilities of the software. Secondly, they have more automation features for users to easily automate manual or repetitive tasks. The company’s management team said “No-code automation and integrations is already being used by 100% of enterprise customers. 88% use more than 50 automations. Over the past year, customers have automated over 900M actions.”

There is more.
I see this as part of the already-in-motion move to digital transformation and cloud-based services/solutions, vs a pull-forward from covid.

Dreamer

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There is still a lot of room to grow and early days for adoption. I don’t think the pull forward was as much as say a Zoom since this wasn’t an essential service during the pandemic. But I believe Companies are seeing the benefits of having a workforce collaboration tool and will invest more and more into this.

There are a few players so I think it makes sense to invest now when Companies start to reevaluate their IT strategy and invest. I would have liked the Company to discuss that they have considered ROI more but the earnings report looked good.

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I had casually emailed this out to some friends of mine but wanted to put this out there in the public view as well.

I basically agree with Dreamer. I liked this report from Monday and would say that its overall quality ranges from good to very good.

The only ding is a slight deceleration in revenue growth from 17.6% last quarter to 15.1% this quarter. But this sort of deceleration should not be taken too seriously, since it is small in nature and surrounded by other very positive developments. These other positive developments include that they:

a) grew enterprise customers 29% QoQ (over 200% YoY)
b) grew net dollar retention rate for those with > 10 customers to 135% (from 130% last quarter)
c) improved their NG operating margin from -11% last quarter to -10% this quarter
d) gave us basically the usual 6% guide for next quarter (technically it rounds up to 7% this time). Recall 6% is precisely what they guided to the last couple of quarters, and each time they’ve come in much higher than 6% growth.

And regarding the “ding” I give them for revenue growth, on a YoY basis it still comes in at 91%. So it is really a nit pick on my part - I think that kind of revenue growth is fantastic, and it’s better than most other companies I own. This was pretty much a business as usual quarter for Monday.com.

I could also ding them for a weak annual guide, which is for 54% annual growth in 2022. This is obviously a huge come down from 2021, but it looks like classic sandbagging.

Also, keep in mind that it is actually a gift when the market misinterprets a solid earnings report. Although I am sure we are all tired of these “gifts” we seem to keep getting.

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Yea I also agree with Dreamer, he makes many very good points.

Not sure how someone goes from having MNDY as one of their highest conviction names in their concentrated portfolio, and on this report everything changes and they dump the stock. It’s seems that this is what’s happening.

Is this a bad earnings report or a reality check of your original conviction?

I had only a 2% position, which matched my conviction, and I won’t be selling, more likely adding.

TMB

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If Monday was UP 20% premarket with the same earnings, people would be talking about the company’s hypergrowth instead of its operating losses.

Along those same lines, I wonder how many on this board started or added to a Bill.com position after the last ER. They are guiding for Non-GAAP net loss of around $46M on about $600M of revenue for FY22. Their organic growth revenue growth was only $97M (85% YoY). A lot of their 190% total Q2 revenue YoY growth came from including some fairly significant acquisitions in their results.

I’m not saying Bill.com’s results were bad, though. Just trying to make some informed comparisons.

Long MNDY

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For reference, I checked some Saul board stocks in the same realm (prod software) from a couple years back:

SmartSheets SMAR
https://seekingalpha.com/news/3776665-smartsheet-eps-beats-0…

Anaplan PLAN
https://seekingalpha.com/news/3774007-anaplan-eps-beats-by-0…

Both at about same expected revenues for next 12 months, but SMAR growing in the 40’s% range in latest report, and PLAN in the 30’s% in latest report.

Both actually have higher mkt caps than MNDY at the moment.
So this reaction seems out of whack, and potentially a buying opp, as TMB (and champ on another board) have indicated.

Dreamer

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My view chimes with that of Dreamer, Dave and TMB. The earnings report was not bad at all. We won’t know what the ROI is on the SB ad but it is clearly in line with their offensive to land and expand. This would explain the forecast losses next year as they invest in their brand and their business.

It is clear that the current market environment (which favors commodities, oil over growth) will judge a loss-making hyper growth company harshly. Yes MNDY is hyper growth, nobody believes their forecast such that we have to calculate next Q revenue as guide+beat. I wish they wouldn’t play this game of sandbagging but it is what it is. When the market environment changes somewhat and there is more liquidity in the system, the market will have much more appetite for Growth. In the meantime, with limited liquidity many are looking for an excuse to rush for the exits. As stated above, the focus would have been on revenue growth in a different environment. I am willing to wait it out until there is a less harsh environment, Putin / Powell permitting. In the meantime, it seems that now is the time to accumulate these names not dispose of them

Needless to say, I am curious on Saul’s take on this ER too

Long MNDY

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