MNDY was fine - your expectations are not

Investment Analysis Clubs Saul’s Investing Discussions
21

I feel like this drop is an over-reaction. I may be wrong. I was expecting 95-97mil this quarter. I see others expecting a little more but the biggest decider for me is the guidance. They are suggesting a better quarter than they just had so why panic? I will explain my logic.

For Q4 Monday guided for $88mil and delivered a 9% beat of $95.5mil for a year over year of 91% and QoQ of lower than normal 15.1%.

The 2022 Q1 guide is for $102mil (I always use high end because I am expecting them to beat that)

Apply the same 9% beat and you get $110.7mil for Q1. Which would be YoY ~88% and QoQ ~16%. So yes it is slowing compared to last year but slightly faster than last quarter. But this company was not priced like a company that would sustain 95%+ growth (that would be approaching SNOW territory).

Here are two scenarios I think are plausible with moderately decreasing QoQ growth for the next 2 years. Note: YoY ext is the extrapolation of the QoQ rate for a full year. Scenario 1 we see deceleration over the next 2 years from ~80% to ~70%. Scenario 2 is deceleration over the next 2 years from ~80% to ~60%.


Scenario 1 (.25% decrease in QoQ rate)
	Rev	QoQ	YoY ext
Q1 2022	110.7	16.00%	81.1%
Q2 2022	128.1	15.75%	79.5%
Q3 2022	148.0	15.50%	78.0%
Q4 2022	170.6	15.25%	76.4%
Q1 2023	196.2	15.00%	74.9%
Q2 2023	225.1	14.75%	73.4%
Q3 2023	257.7	14.50%	71.9%
Q4 2023	294.4	14.25%	70.4%
			
Full 2022	557.4		
Full 2023	973.4		
			
			
Scenario 2 (.5% decrease in QoQ rate)			
	Rev	QoQ	YoY ext
Q1 2022	110.7	16.00%	81.1%
Q2 2022	127.9	15.50%	78.0%
Q3 2022	147.0	15.00%	74.9%
Q4 2022	168.4	14.50%	71.9%
Q1 2023	191.9	14.00%	68.9%
Q2 2023	217.8	13.50%	66.0%
Q3 2023	246.2	13.00%	63.0%
Q4 2023	276.9	12.50%	60.2%
			
Full 2022	554.0		
Full 2023	932.8

Either way the yearly run rate by 2023 would be over $1 bill (with growth likely still 60% or higher). I think this is why the company is plowing resources into growth right now. I am content to maintain my 20% allocation. This required me to again sell my ZI to add MNDY at 144 and 142 this morning to keep it roughly 20%.

Thanks,
Crammarc
Long MNDY ~20%

26 Likes
22

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

Well, given the intense concern about Monday, I’ll post my feelings, but please remember it’s just my opinion. I have no knowledge at all about technology, and no finance or investing degrees, so please make your own decisions.

Last week I reduced the size of my position from 15% plus to 13% plus so that it fit in size with my other positions (except for Datadog which is in the 20% range).

Yesterday I sold a tiny bit more at about $194, just to add to my Cloudflare which was only at a 10% position.

Today I added Monday shares starting at $155, and continued adding down to $131, with an average price of my adds of about $139.10, all of which seems like a gift to me. The amount of my add was about 25% of the number of shares of Monday that I had at the beginning of the day.

I agree with the way Dreamer and others see it. It was an excellent report, and they showed that they could leverage to positive Operating and Free Cash Flow.

Now, having a greenfield to plunge into, they are correctly spending money now to get as many customers as they can while the getting is good. It would be irresponsible not to do so as the revenue that they are adding is “forever”, not just for this year, and not just this years amount of revenue, as you can see with their serious customers having a net retention rate of 136%.

Saying that they are not profitable like Crowdstrike is just silly and comparing a plum to a large watermelon, as they are at much different stages of maturity.

But all this is my opinion, and if you have a different one, please act accordingly.

Saul

181 Likes
23

I think there is no way to not see this report as very strong. Just look at some of the initial comments from analysts in the call:

Kash Rangan (Goldman Sachs): Hi. Thank you so much and congratulations on a spectacular finish. Strong top-line growth also you are generating free cash flow. So it’s very remarkable…

Mark Murphy (JP Morgan): Yes. Thank you very much and I will add my congratulations as well on just a fantastic free cash flow performance…

DJ Hynes (Canaccord): Hey. Thanks guys. Congrats on the continued momentum here…

Derrick Wood (Cowen and Company): Good morning. Thanks. My first question I wanted to touch on the net revenue retention rate 10+ cohort up from 119 to 136 that’s a 17% increase, really impressive…

It was a great report. Yes, sequential growth was a touch lower, but what is the point? I agree with Dreamer that nothing about Monday’s story has changed here. The only thing that has changed is that you can now buy this same company at a hefty discount, which means much lower risk for investors buying now. This is not to say that you cannot lose more money here. monday.com is far from a sure thing as a company and an investment. But I wouldn’t be surprised if they were trading much higher in the second half of the year if they continue to execute as in 2021.

As Saul said, demanding profitability at this stage is really silly from a business perspective. That the market apparently is demanding it right now does not make it less silly. This is not the time to throw in the towel on Monday.com (and other great growth companies) in my opinion. Not at this level of execution, and certainly not at this valuation.

Best,
Niki

36 Likes
24

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.

I don’t understand this comment, CEO said ~53% growth rate and you’re saying 80%?

Naj

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

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25

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

If they’re merely “gaming” & ‘sandbagging’ in the C-suite, why wouldn’t they simply ‘sandbag’ to a higher number that didn’t cause the stock to drop 50 points today?

After all, if they’re really going to come in at 80% growth why not say 60% instead of low 50s? or 65%?

Honest question,

Naj

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26

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.

I don’t understand this comment, CEO said ~53% growth rate and you’re saying 80%?

Naj

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

–

Start with $100. In this example they did 22, 24, 26, and 29m last 4Q’s, for 10% q/q growth
CEO says gonna grow that 54% this year. Given beat-n-raises I will say that is an extra 6% each Q.

Already said Q1 would be 73%. This would also mean Q2-Q4 grow much less just to wind up at 53% overall. Assume sandbag also for Q1 so maybe 78% is fair?

Q1 from $22 x 1.78 = 39m

$153m is the forecast goal for full year.
153-39 (Q1) = need to do an average of 38 the next 3 Q’s. So actually have to do negative/flat sequential growth the rest of the year to hit that guidance.

Q2 from $24 to $38 is 58%. Not bad.
Q3 from $26 to $38 is 46%. Hmmm.
Q4 from $29 to $38 is 31%. Huh.

My point was given the Q1 guidance, and assuming 6% type Qtrly beats, you quickly go from 53% into the 70% range. I think they end up closer to 70% than 80%, but it was just a range, because I have to predict the future.

I will look into the Humpty Dumpty nursery rhymes - appreciate the hot tip.

Dreamer

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27

It was an excellent report, and they showed that they could leverage to positive Operating and Free Cash Flow.

Now, having a greenfield to plunge into, they are correctly spending money now to get as many customers as they can while the getting is good. It would be irresponsible not to do so as the revenue that they are adding is “forever”, not just for this year, and not just this years amount of revenue, as you can see with their serious customers having a net retention rate of 136%.

With MNDY’s GM% of 87.7% and continued revenue growth, they were able to fund a 13% QoQ increase in operating expenses, or $13.4M QoQ increase, and still end up with $13.5M in cash from operating activities for the Q. As mentioned on the CC, they intend to really push hard on operating expenses in 2022. By my back of the napkin calculations, they could increase operating expenses QoQ by approximately 15% and still end up with a slight cash from operating activities in Q1. Again, the CC remarks do indicate the increase will be much higher, but may I point out they will likely be able to fund a good portion of this spend with a likely increase in deferred revenue resulting from continued customer growth and payments in advance of performance. If they don’t see a QoQ increase in deferred revenue, as I expect, they are also sitting on $887M of cash at the end of the year to help fund the increase in OPEX.

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28

Let me start by saying it’s tough to make predictions, especially about the future (Yogi Berra).

I’m not going to re-hash all the numbers that have already been hashed and rehashed in this thread. I will however, pitch in my two cents.

First, like Dreamer implied in the first post, this was basically a very good report.

I liked the Superbowl advert. Well actually, no I didn’t like the ad so much, but I liked the fact that they took out a Superbowl ad. I think it was money well spent. The Superbowl gets more eyeballs than any other thing put on television. A lot of those eyeballs belong to executives and other people in leadership positions. Getting the Monday brand in front of those folks is a good thing.

I also like the fact that co-CEO Roy Mann opened his comments with the statement, “First, we remain highly focused on acquiring new customers.” Monday is playing in a very crowded and highly competitive space, Asana, Smartsheets . . . Google “Monday.com competitors,” there’s dozens and dozens. Customer acquisition is key. Team collaboration and project management with respect to intellectual property development has been a difficult, even at times nearly intractable task for decades - Read the Mythical Man Month by Fred Brooks, first published in 1975. It’s a book about managing the software development of an IBM mainframe operating system.

The problems inherent in this endeavor are not new, the solution remains illusive. What it’s clear is that Monday and their competitors are focused on providing new tools to better facilitate the task of interactive team management. Eventually, the marketplace will settle on a limited number of tools. IMO The pursuit of enterprise customers and expansion of their R&D and marketing teams are exactly the right things to focus on.

As for the quarterly report, as I already noted, I concur with those who found it to be quite positive. Of course, they are sandbagging their guidance. When was the last time any hypergrowth company actually missed their guidance? Yes, it happens, we’ve seen a few instances over the last few years. But it’s exceptionally rare. And Monday has already established themselves for providing very conservative guidance, so this quarter is really nothing new.

Why did they get beat up? For all I know, Putin had as much to do with it as their guidance. That’s not an entirely facetious comment. Wall Street doesn’t like the notion of war in Europe. In case you didn’t notice, just about everything took a beating on Wednesday. The thing is, we’ve seen a similar movie before. I sincerely thought we had already touched the bottom, but speculating about it brings me back to what I said at the outset - predictions are tough.

I will say that if you have an income, now is probably a good time to go shopping for growth stocks. If I had some extra money, Monday would be on my list.

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29

Why did they get beat up? For all I know, Putin had as much to do with it as their guidance.

Asana also got beat up today (-23%) almost as much as MNDY (-28%).

The only article I found blamed MNDY’s “low” 2022 guidance for Asana’s sympathetic fall (it was a Fool article, go figure).

I bought more MNDY.

2 Likes
30

Guys,
Been a lurker on the side lines on this board over last couple years and while I still really suck at making quick great decisions like many experienced ones on this board, I just wanted to share something around the reported Operating Loss, since everyone seems reasonably fine with the Revenue growth, which even for me it perfectly landed within my expected range. The operating loss was surely not the best.

But the board has taught me to follow the numbers on the companies. So for each company, over last few quarters, I had started to track the Annual Guidance made each Quarter towards the Revenue and other metrics. And I have noticed that pretty much every Hypergrowth company that we follow reports conservative Revenue, while even more conservative operating or net income numbers, but the Actual comes out way better.
Below are some figures for Annual Guidance on Non-GAAP Oper Income/Loss for couple individual companies and how it improved each Quarter as they got better visibility v/s Actual Fiscal Year End Oper Income/Loss that they ended up with

MNDY:
Annual Guidance Q221: -$93M / Q321: -$65M
Actual Fiscal 2021: -$52.6M (so it improved from -$92M to -$52M. I am not sure if there is a way to find what they guided/expected before IPO??)

DDOG:
Annual Guidance: Q121: +$50M / Q221: +$90M / Q321: +$134M
Actual Fiscal 2021: +$165M

NET:
Guidance: Q121: -$28M / Q221: -$9.5M / Q321: -$10M
Actual Fiscal 2021: -$7M

UPST:
Guidance: Q121: +$60M / Q221: $127M / Q321: ??(Didn’t provide Fiscal Guidance for some reason)
Actual Fiscal 2021: $232M

I have some other examples of companies with similar track

So while we are agreement that its good that Monday is spending now to gain market share, it is also a possibility that the # shrinks by 30-40% as we go through couple quarters.
Anyways, just thought I’d share that perspective. Feel free to correct me here if I am out to lunch here on this thinking as I am still learning.

I still haven’t decided on my MNDY shares entirely as I have to read through the Q&A of the call, but press-release and financials results seem decent.

Thanks all
iCAAN

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31

I couldn’t agree more with everything dreamer posted here, and Saul.

I loved everything about this. As I posted last week all I really wanted to know is that customers were expanding their use of the tool. I want to know that users are happy and telling others to try it! Monday is all about user experience. If they had high sales and tons of churn, even if it resulted in the same top line numbers, I would be very unhappy.

Check.

Then add in the nice surprise that they are introducing new modules in a suite-approach! I assumed all of their new products would be value-adds. If this pans out we have a couple of new products to generate revenue off the current network of users!

Finally, the fact that 70% of their customers are greenfield and most are not in tech perfectly aligns with what I was seeing when evaluating the products for use with my own teams. We continue using Jira for development and Monday for some other teams and personal organization.

Thinking about valuation, with a company growing at 90% year over year, how does the price not go up from here? I can’t wrap my mind around the market right now so I’m not going to try. I still have quite a high allocation so I’ll probably just sit on it. Hard not to buy though

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