Why I am holding on to Monday.com which is currently 16% of my portfolios.
I will go over the Earnings report, Earnings Call from May 16th, and also a JPMorgan Investor interviewing Roy and Eran on May 23rd.
Let’s start with notes from that 35 min JPMorgan interview. Listening to it helped me to retain my conviction in this company.
As you listen, you can hear the excitement in their voices, they are giddy, they love what they are doing, the see the value they create is validated by the feedback from businesses adopting Monday.com WorkOS platform.
- Our ambition was to create new kind of software, generic and flexible, people to build their own tools on top of our software.
- 170 countries customers, 200 diff vertical industries. 70% non tech segments. Strong indication for ease of use of platform.
- Why is the business scaling so fast? how do you do it? - Two things. very efficient, scaling in smart way. We are building as infrastructure so we can move fast. We package on top as value. You can reconfigure platform.
- Market is infinite.
- We see the shift in the category of project management. With monday they use it for many use cases, not only project management. It’s not building in rigid way, you can build on top of it, reconfigure it. It can also be a project management.
- We invest in the platform and everyone gains from it. It’s a platform rather than verticalized software
- Infinite market. 1 billion knowledge workers in the world. It’s for everyone. (We also have truckers)
- you are building the tools that run your business. You build your tool to build your business. We run the core of operations. core of business.
- What is the secret sauce? The product is beautiful and easy to use. we want amazing experience, if people spend hours using your too, you want it easy and beautiful.
- every company is unique, every company goes through evolution, you want to give them tools to evolve.
- What does a user population look like ? We have Builders and Changers; as you discover your need you can jump in and change the software.
- people open a board on monday and ask themselves, how am I going to manage this, they can define it. thats the magic part, you can change it
- We have 4 products to price separately, yes, we package our product as a CRM for example, but customers discover they can build on top of it. We want to be enterprise ready for those 4 packaged products. Most used use cases. People search for solutions, we want to be found, that’s why we package
- We are super efficient, we are about returns, for every dollar we get more than $4 back. we improve the funnel, the product, the experience.
- in Q1 we ramped up, we want to see the same return for invested dollar. We front load a lot of expenses but we expect that to return
- how do we know what to build next? Big Brain, our in-house tool. We optimize all we do. Big Brain tells us what we need to focus on, what to build.
- Did the pandemic help you grow faster? Now that people return to office is there a slow down? No, It was net zero. Now it’s better for us, people are in the office so they discuss processes and they can change Monday.com platform. all in all, the market now is better for us.
When I listened to this Analyst interview and to the Earnings call I kept thinking of a Theory of JOBS TO BE DONE by Clayton Christensen https://hbr.org/2016/09/know-your-customers-jobs-to-be-done
FYI, Matthew Prince of Cloudflare was Christensen’s student at Harvard Business School. Christensen is also famous for “The Innovator’s Dilemma” and “Disruptive Innovation” and I encourage you to learn his body of work business theory.
Anyway, back to JOBS TO BE DONE theory: “Every day stuff happens to us. Jobs arise in our lives that we need to get done. Some are little jobs, some are big ones. When we realize we have a job to do, we reach out and pull something into our lives to get the job done. – What products to you hire to get that job done”
And to me Monday.com WorkOS is that product, it’s a platform for JOBS TO BE DONE. Little jobs, big jobs, jobs that can be modeled, reconfigured, recreated. Companies have JOBS TO BE DONE, employees can hire monday.com and the reconfigure either existing workflows or start from scratch on an empty canvas how they want to approach the JOBS TO BE DONE.
Second point from Christensen that came to mind: Disruptive Innovation. I keep hearing in Monday.com presentations that 70% of wins are greenfield opportunities, they are not displacing anyone. They compete with ‘non-consumption’, there are no incumbents, they provide a service for JOBS TO BE DONE that are currently done by email, spreadsheets, shared docs etc…
Well, enough of this philosophy. I just wanted to bring that up so when you listen to Roy and Eran talk about Monday.com platform try to see if you can apply the lenses of theory from Clayton Christensen.
NOW back to Earnings announced on 5/16/22:
On 3/9/22 at Q4 they told us they would make up-to $102M in Q1, guiding for 6.8% QoQ growth, and 73% YoY.
They delivered $108.5M, a 13.6% over previous Q, a 6.4% beat, and 84% YoY. They added $13M more than previous Q. My worry was that they have been adding about $12.5M over the last 2 quarters so I wanted this to be 13M or above.
On TTM we are now at $357.6M, 16% over last Q, 90% YoY growth. Here be the numbers table last 4 Q from latest to previous Q
Q122 Q421 Q321 Q421 Q121
OUTLOOK 119.0 102.0 88.0 75.0 ?
QoQ% 9.7% 6.8% 6.0% 6.2%
YoY 69% 73% 76% 76%
BEAT 6.4% 8.5% 10.7% ?
REV$ 108.5 95.5 83.0 70.6 59.0
QoQ 13.6% 15.1% 17.6% 19.7% 17.8%
YoY 84% 91% 95% 93% 84%
QoQ 13.0 12.5 12.4 11.6 8.9
YoY 49.5 45.4 40.4 34.1 27
TTM$ 357.6 308.1 262.7 222.3 188.2
QoQ 16% 17% 18% 18% 17%
Adjusted Gross Profit was 89%, similar to last 5 quarters. So that’s solid
Their S&M spend was 100% of revenue, ouch, harsh. They did tell us they will ‘front load Q1’ expenses for the year. They also told us that this is what they did in previous Q1, that this is a Monday playbook to GoToMarket. I am ok with that. They also said that part of the spend was $11M on Super Bowl Ad (I believe they wanted Brand Recognition) and they also spent $10M on headcount increase (that came up in earnings call).
Back in Q4 they told us they adjusted Operating Income was going to be at least -45M and they came in at -43.8, so that’s not surprise there. Overall I see the path to profitability over the next 6 quarters. They tell us that for every $1 spend they generate $4 in revenue. SBC this Q was in line with previous Quarters.
Customers: They did not disclose total customer count, as of last Q they had 152K customers and they keep using 150K+ figure in this Q. They also disclosed that 70$ of ARR comes from 10+ customers (but they don’t tell use how many customers in that segment), however they told use the Dollar Net Retention for 10+ is at 135%, healthy expansion
However their 50K+ customer count went up to 960, they added 167 customers this Q, 21% more than last Q, and 187% YoY.
Q122 Q421 Q321 Q421 Q121
50K+ 960 793 613 470 335
QoQ% 21% 29% 30% 40% 27%
YoY% 187% 200% 231% 226% 219%
QoQ 167 180 143 135 71
YoY 625 529 428 326 230
They have 625 more customers now than a year ago in Q121. 22% of ARR comes from those customers.
They disclosed that 85% of revenue comes from PRO and Enterprise Peers accounts.
Dollar Net Retention for this segment is over 150% (same as last Q). very healthy expansion.
It’s good to say mention the Marketplace metric, they have 126 apps now, up from 108 in previous Quarter, this is not yet a significant revenue stream but growing.
Headcount increased a lot, they added 220 people, 21% more than last Q, for a total of 1284 employees in the world. At this point the company culture will show us how well those employees are integrating (I mean 1/5th of new people) into a cohesive whole over the next 12 months.
Cash and Cash Equivalents at $849.6M. Plenty of cash on hand to keep expanding.
I am ok with all the numbers. If I didn’t already own this business I would be a buyer here, and given that they have been punished by Mr Market I can see it going up in the next 12 months. I think fundamentals are strong.
Let’s get to the ‘confidence’ in the story, Let’s dig into Prepared Remarks and Q&A session of Earnings call to find ‘confidence’, ‘worry’ or other unexpected utterances so frequently heard on calls.
Prepared Remarks and Q&A
- 50% of the Fortune 500 companies use our platform, up from 38% just a year ago
- we are investing in creating more value for these customers, including in security, governance, and compliance requirements
- 50K+ customers NDR 150%
- 10+ users NDR 135%
- total customers NDR 125%
- 70% of our customers coming from non-tech
- We’ve also been very successful in meeting our aggressive talent requirement targets.
- excited to announce we have signed an authorized reseller agreement with SHI International, one of North America’s largest IT solution providers
- partnered with Vogue for the Met Gala’s first-ever branded content software partnerships. Using our platform, the Met G
- Work OS product suite with four new products, each with their own unique pricing models (baconski here: it’s worth to notice this is a packaged bundle of workflows that customers could have built themselves from scratch but monday here is selling it as a ‘starter’ where people can then reconfigure themselves as their business evolves)
- Customers can add more products at any given time or move data between products.
Moving on to Q&A: There were 11 analysts on the call. Analysts positive mentions ‘congrats on a great quarter’, ‘very healthy’, ‘great start of the year’, ‘accelerating acquisition of new customers’, ‘billings increased sequentially’. There were some signs of worry like: ‘inflation’, ‘potential price increase’, ‘recession’.
I will not copy and past all the Q&A, you can read it all here
I will extract the essential Q and essential Answers that provide the color to the Question asked. I tried to delete plenty of non-essential sentences, and utterances.
Question: on macro worry, recession, any changes in demand? AND you sound very confident you can improve operating leverage, how you expect to do that?
- we see a lot of demand, and we feel confident about where we are as a business and our ability to keep growing
- we are obviously aware of the macroeconomics now and what’s happening, keeping an eye on it.
- why we are confident about the margins getting better. This is what we said we are going to do on the last call. Q1 is an outlier, we front-loaded expenses, just as we did in Q121, going back to normal in Q2, S&M in low 80%
Question: Your product announcements, interesting evolution, how do you envision adding more suites to these 4 you announced? Will you create more?
- Lot of demand from our customers for those solutions. we felt it makes a lot of sense to mature them and to make our solutions more deep, more features, more capabilities, pack them in a proper way, have specific onboarding and specific feature sets for each one of them.
- Packaging those products independently gives us the ability to sell them separately and have different pricing for each one, while benefiting from having the entire company on our Work OS Platform. Strategic move.
Question: 150% NDR for 50K+ customers, what do you see driving such a large number?
- we mentioned previously there is a shift in our business that we’ve added Sales Team few years ago, and we see constant growth within the Enterprise segment.
- we invest a lot in the product, having enterprise security, stuff that opens more and more doors to those customers
Question: your largest deployment is 7K seats, any chance of breaking through that ceiling? You also produce more than 50% of rev outside USA, can you provide confidence of growth specifically in Europe? Any degradation at all? Or all systems go?
- we see the Sweet Spot always growing (Baconski here: I am going to call Roy The Sweet Spot Mann, he mentioned Sweet Spot several times in a call)
- we are widening our approach to more and more customers, also depth of solutions that we offer.
- nothing unique in Europe or elsewhere. We don’t see any signs of softness
- 70% of customers from non-tech industries. over 200 verticals (baconski: I think they also disclosed they are in 200 countries and 14 languages)
Question: how does Q on Q acceleration in new customers acquisition look like? Can you clarify?
- we have increased our S&M this Q. This is part of our playbook, we plan a year throughout.
- our Q1 customer acquisition very efficient.
- we managed to maintain very high efficiency in acquiring new customers, and this is a huge investment for us going forward as we feel this is the right thing to do given the huge opportunity that we have as a company.
- Our unit economics remain strong and very efficient as we managed to scale our marketing efforts
Question: I think 60% of Fortune 500 is now Customers of yours. Any nuances in how they purchase your products compare to smaller customers?
- first of all, the vast majority of customers do land and expand. They start with a small account and then we expand over time.
- every new deal we have is a door open for another deal, meaning we always expand within our customer base. You can see that in the NDR
- On the other side, we do see larger deals happening up front, they start bigger, and we also expand faster. that’s a trend that’s been happening in the last two years
- as monday grows as a brand, customers understand it’s a solution and they can trust us more and more, we see more of those top-down deals starting.
Question: how do you compare you 4 products you announced to the ‘best-of-breed’ solutions out there?
- it doesn’t mean we are competing with other large enterprise solutions, we actually integrate really well into them.
- we are enhancing our integration into Salesforce and Atlassian for example.
- we see a lot of deep integrations into companies’ workflows
- partnerships, with SHI (shi.com) actually opens the door for a lot of enterprise customers in America.
Question: what about government sector, public sector? Any meaningful presence?
- definitely the new partnership with SHI is very strategic for us. As we go more to enterprise companies and larger enterprises, definitely, this specific sector is very interesting for us. So this specific partner is working in North America with a lot of focus on local government and other companies. And for us, this is a very strategic part of allowing our products to be available to more sectors and more parts of our customer base. So definitely, we’re going to invest more resources into that going into the future.
(baconski here: well, so not a lot of presence in public sector yet)
Question: NDR across all users increased substantially this Q. Is that a function of the shift to Enterprise mainly? tell us how we should see this?
- first, we are seeing product improvement because we are very focused on continuing to innovate and invest in our products So this is one of the reasons for the expansion.
- Second, is our ability to expand within existing customers once they unlock the value of the monday product. Together with the additional solutions – product solutions that we introduced, they continue to increase the number of seats and number of verticals horizontally.
- I would expect with regards to the numbers that we got to a point, this is really best in the industry to be above 125% for total customers and about 150% to enterprise.
- I believe we are going to see potentially a few basis point improvements, but we believe this is kind of stabilizing, and we are going to see these rates over time
Question: which of those 4 products is the fastest growing use case for monday?
- Our customers use monday for many use cases, but those four releases stood out and has the most potential.
- we see a lot of traction in our sales CRM product, but also our developer product is very interesting. We still have demand in the marketing products as well. And obviously, project management for us, it’s really the sweet spot.
- when we planned the guidance and our model, we didn’t take those products into account. They are still new and we have a lot of growth to do in each one of them. But definitely, we see a lot of positive signs and a lot of very excited selling customer feedback from our customers using them. So we’re very excited for the future of those product
Question: You no longer show 10+ customers ARR metric but can you comment on that? Also your sequential billings increased quite a bit, any large deals this Q?
- Last time we disclosed 70% of ARR from 10+ customers, it continues to improve.
- 85% of ARR comes from customers buying the PRO and ENTERPRISE. Trend continues to move forward
- Calculated Billings is not a leading indicator, we usually look at growth: Rev, NDR, Customers. Those are leading indicators
- but we saw a sequential increase in billings versus the previous one.
Question: you had pretty sizable headcount increase, and front loading, what drove you to do this? AND what’s the distribution of this headcount? US? other regions?
- our increase in spend. About $11M Super Bowl advertising, Another $10M increase in headcount.
- usually we accelerate hiring in Q1, it was opportunity to increase our sales force.
- and the rest of the increase, give or take, is increasing the performance market.
- as mentioned previously, we managed to scale our performance marketing, while keeping the same efficiency and unit economics in terms of acquiring new customers. So we’re very happy about our investment in terms of performance marketing
- history of the company, we’ve been doing this around each year during January.
- we hired people in US and outside, Combo if Israel, US, London, Sydney and other places.
Question: We introduction of 4 products, do you anticipate any changes to your sales and goto market?
- we see here a huge opportunity, mainly because those products allow us to market to specific audiences and specific customers.
- we can have more targeted marketing to those audiences as opposed to broadcast to a mass audience when we talk about the Work OS.
- Having those independent products will allow us to have more specific targeting, resulting in what we already seen early signs of lower customer acquisition costs and better adoption in terms of acquiring new customers.
- Over time, and this is the big opportunity here, we can – we already see that as well. We see those customers expanding from that specific use case to start with.
- To more use cases and eventually as part of our vision of the company to have the whole company working on the Work OS platform. So this is part of the reason why we’re so excited about those new products, not only that it allows us to have a more efficient go-to-market, but better onboarding and more potential to expand within an organization.
- didn’t model this year according to any results from them.
Question: Are you seeing any changes to competitive landscape? or are you mostly landing in greenfield opportunities?
Are you seeing any vendor displacement?
- we gone through the same environment that we saw before. 70% of the deals, we see no competition. It’s still a huge greenfield in terms of the opportunity and our ability to acquire new customers.
- In terms of this new product, definitely in each one of those categories that our existing competitors, it’s still early days. But as I’ve mentioned, from what we already see by releasing those products and doing, although limited, but some marketing to them, we see a lot of efficiency in terms of customer acquisition and process and other growth opportunity in terms of go-to-market. So this is kind of basically the dynamics that we see.
- for the last two years, we’ve been marketing to those exact 4 segments, What we’re doing now is another step of evolution of packaging it as separate products, but we’ve always had those solutions that monday customer adopted. So we feel very confident in this going forward
Question: What signals do you use to trigger direct sales engagement? spent threshold? usage metrics? What’s your approach?
- usually the way customers adopt monday is bottom-up. And we see customers starting using monday from all companies, all sizes and different roles, different positions within the company. The way our sales algorithm work is that, whenever a customer signs up, we ask that customers advances detail during the final process about company size, their role in the company and how large a deployment they want. And also we’re using third-party tools to enrich that information. Using all that information, we classify accounts that have potential to grow.
- Once we see paying account with engagement within the account and the potential to grow to, let’s say, 1,000 people or more. Our sales team is engaging that customer.
- The customer is already using monday, happy with a product and then we try to expand the usage. Usually, it’s a short sales cycle, which leads to future sale cycles as well.
- We see an opportunity to create a strong outbound motion. We see a strong opportunity to create a B2B mechanism where we can market to senior executives.
- we are investing in all fronts in terms of customer acquisition and creating more opportunities for our sales team
Question: Can you talk about the kind of growth you’re seeing from the partner channel?
- YES, partners important (baconski here: that question was not very good)
Question: Given the inflation, we see vendors change pricing, any potential price increase?
- new products we intend to have diff pricing for each. depends on industry.
- But currently, we don’t have any specific plans to raise prices.
Question: Can you update us on the marketplace, traction you’re seeing there, updates on the monetization plan? And then also does the annual guidance include any contributions from marketplace?
- our marketplace is something that’s very important for us as we sell the company. Last quarter, we released our own payment system within the marketplace. app developers can now monetize their app using our payment platform.
- We didn’t release any numbers attached to it. But just to give you the sentiment, we see very good results from that new release, new asset developers that create new applications, see higher conversion rates, more customers are willing to pay using that payment system.
- it’s something that made a huge impact on our cost base and we continue to invest. We see the number of developers going up, the number of applications being created, and also used going up consistently quarter on quarter. So we continue to heavily invest into that.
- I wouldn’t say it has much impact on our revenues yet because it’s still small numbers. But going forward, this is a big part of the product, it has a lot of potential as well.
Question: Given that you just started hiring heavy-duty sales capacity, and your NDR 150% for 50k+, Could this metric even get better?
- this is the first quarter that we released NDR $50,000 for accounts, and we’re super happy with it.
- those customers have a lot of room to grow. We still have much more scale to having them.
- over time, we’ll commit to keep releasing that metric quarter over quarter. But we do see this metric stabilizing. But going forward, definitely, we’re going to have more upsell opportunities.
- Now with the new products that we’ve released and also the WorkForms and the Canvas, we’re going to need more opportunities to expand our usage with other products. So definitely, there’s potential for that number to go up. But as it is right now, when we also benchmark this compared to other companies, this is definitely best NDR numbers. And we’ll continue to invest in those enterprise customers.
So, that’s it. Lots of good questions and answers. The business is firing on all cylinders. We’ll keep looking for Operating margin improvement, better customer counts next Q.
Good luck to all the longs on Monday.com, Cheers