monday.com Q2 2021 Results

Investment Analysis Clubs Saul’s Investing Discussions
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I have a 3% position.

Q2 Revenue was $70.6 million. It’s up 19.72% from 58.9m sequentially. Company guidance for Q3 is just $74 to $75 million, an 5% increase sequentially. Not sure it’s sandbagging? But I see historicaly, Monday.com’s Q-Q revenue growth rate varied slightly from 14% to 18% during past few quarters. It averaged about 100% annual growth rate.

Its net dollar retiontion rate is increasing during past few years meaning exiting customers are adding more products/services.

It’s highly diversified across geography and no customer concentration risk.

Notable stats from S1: (meritechcapital)

-Monday has 127,974 customers across 200+ industries in 190+ countries and ranges from teams of two users to organizations of 7,000. The product is available in 13 languages. Monday has customers in ~38% of the Fortune 500 companies.
-No single customer accounted for more than 1% of revenue in the years ended December 31, 2019 and 2020 and for the three months ended March 31, 2021.
-Net dollar retention for all customers was 100%, 105% and 107% for the three months ended December 31, 2019 and 2020 and March 31, 2021, respectively.

Management Commentary:

“We delivered strong results in our first quarter as a public company, as strong execution and expanding adoption of monday.com Work OS drove total revenue growth of 94%. We are pleased with the momentum in our business that demonstrates continued high growth at scale,” said monday.com founder and co-CEO, Roy Mann. “monday.com Work OS is the leader in the low-code no-code market, and our business is accelerating as we continue to expand platform usage into use cases such as operations, project management, CRM, finance, marketing, HR, and IT,” said monday.com founder and co-CEO, Eran Zinman.

“Rapid growth in the second quarter was driven by large expansions within our existing base and strong growth upmarket as we continue to see momentum in Enterprise,” said Eliran Glazer, monday.com CFO. “While we have made tremendous progress in the last few years, we believe that we are still in the very early stages of our growth as a company, and our guidance for the balance of 2021 suggests a strong second half of the year as we continue to drive fundamental improvements to the future of work and collaboration for companies of all sizes globally.”

Second Quarter Fiscal 2021 Financial Highlights:

-Revenue was $70.6 million, an increase of 94% year-over-year.
-GAAP operating loss was $27.5 million compared to a loss of $28.2 million, in the second quarter of 2020; GAAP operating margin was negative 39%, compared to negative 77% in the second quarter of 2020.
-Non-GAAP operating loss was $9.9 million compared to a loss of $14.9 million, in the second quarter of 2020; non-GAAP operating margin was negative 14% compared to negative 41%, in the second quarter of 2020.
-GAAP net loss per basic and diluted share was $1.67 compared to GAAP net loss per basic and diluted share of $2.79, in the second quarter of 2020; non-GAAP net loss per basic and diluted share was $0.26 compared to non-GAAP net loss per basic and diluted share of $0.39, in the second quarter of 2020.
-Net cash used in operating activities was negative $0.4 million, with negative adjusted free cash flow of $1.5 million, compared to negative net cash used in operating activities of $13.9 million and $15.0 million of negative adjusted free cash flow, in the second quarter of 2020.
-Cash, cash equivalents, short-term deposits and restricted cash was $878.0 million as of June 30, 2021, including $21 million from borrowings under our revolving credit facility, and net proceeds from our IPO and concurrent private placement of $736.2 million.

Recent Business Highlights:

-Our net dollar retention rate for customers with more than 10 users was over 125%.
-The number of paid enterprise customers with more than $50,000 in annual recurring revenue was 470, up 226% from 144, in the second quarter of 2020.
-Announced monday workdocs, a completely new capability to monday.com Work OS, which enables organizations to take document collaboration to new levels. Documents are the starting point for work and monday workdocs is a completely new style of connected documents that are built to support collaboration, with live objects that update in real time whenever their source of data changes. The introduction of monday workdocs is a significant opportunity to provide our customers with new ways to create no-code, low-code software and expand how monday.com is adopted across organizations of all sizes.
-Announced the official launch of the free tier of monday.com, limited to two users. The free offering is designed to increase our market opportunity by driving awareness and broader adoption among a new set of audiences.
-Notable new customer wins or expansions during the quarter included Headspace, Wellington-Altus Private Wealth, Mintel, and Adyen.
-New strategic alliances with Global Systems Integrators across key industries such as manufacturing and real estate including Hitachi Solutions and NTT-Data.
-Continued international and geographic expansion with new channel partners, customer deals, and increasing our ARR in this region. Added Polish as a new supported language, increasing our total languages supported to 14 languages.

Financial Outlook:

-For the third quarter of the fiscal year 2021, monday.com currently expects:
Total revenue of $74 to $75 million, representing year-over-year growth of 74% to 76%.
-Non-GAAP operating loss of $26 million to $25 million.

For the full year 2021, monday.com currently expects:
-Total revenue of $280 million to $282 million, representing year-over-year growth of 74% to 75%.
-Non-GAAP operating loss of $93 million to $91 million and negative operating margin of between 33% and 32%.

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CloudL:

Thank you for this fine write-up; it saved me a lot of work. I have been very long Monday’s competitor, Asana, for almost a year. I think there is room for more than one player in the work management space. As you probably know, there are many, many competitors in this space. I have added Monday to my buy list.

Again, thank you for the write-up.

wrciii

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Hi CloudL, You gave a nice thorough cut and paste summary of monday.com’s last earnings report, but I’d like to make a couple of suggestions how you could improve future presentations. Glad to have you by the way.

First of all, this is a fairly recent IPO and most of us are probably not familiar with it, in fact may never even have heard its name before. Therefore a description of what the company does would have been useful. In human-speak instead of in corporation-speak. When we get to the end of your post, unfortunately we still don’t know what the company actually does.

Just using cut-and paste like “Announced monday workdocs, a completely new capability to monday.com Work OS, which enables organizations to take document collaboration to new levels,” doesn’t tell you much unless you already know what they do.

Second, when there are unusual things in the report you should give some indication that you spotted them too, and try to explain them. For example, net retention rates of 100%, 105%, and 107% are epochally low for our companies, and thus deserve some explanation.

When there is something good, point that out too. For example, “non-GAAP operating margin was negative 14% compared to negative 41%, in the second quarter of 2020.” A comment about it would be nice and help you interest people. This came across as if you had just copied most of the press release and posted it.

Here’s how you could re-write that. “Adj operating margin was -14% of revenue. While still negative, it was greatly improved from -41% of revenue a year ago.”

Do you see how that gives a message about it, instead of just a lot of accountant-speak?

I hope that you find this helpful,

Saul

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Hi Saul,
I apologize for the laziness.
This post is more of an earning release post rather than a new company introduction. Only the small paragraph at the beginning is my writing and the rest are copy paste from meritechcapital and Monday company website.

I was assuming the board already knew about this company since its ads was all over Youtube in the past two years or so. I swear I saw its ads so many times that the sound of “Monday.com” echoes in my head.(Good idea to pay some attention to video ads on youtube) I guess it’s not a good idea to make such assumption and post earning release before introducing the company.

Next time, I’ll try to search the company to see if it’s already introduced. If not, I’ll try to write something. I am not as detailed as you so I may not comment as much on the details as you do but I try my best to point out what I think are important data/ideas.

The net retiontion rate started low but it’s increasing. At IPO, it was 121% and now It sits at 125%. Why that happened, maybe it takes companies time to get used to all the features of Monday.com? I rather see it increasing than decreasing. Cloudflare retention rate was hovering around 111% for past few years. Stable high retention rate is good. Increasing retention rate is also good. Declining rate is bad.

Monday.com is a workflow management system. It’s a competitor to Asana. Monday’s revenue growth rate 100% is higher than Asana 60%.

And I made the same mistakes again and again: bought too little at $170 for just a few shares.(I cut back most growth stocks allocation at that time.) Not confident about my own conviction and became impatient because it went nowhere for 2 months (only!) and sold at $214, $218 which was already a 30% gain! Then I realized even good company stock can go side way for a long time… So I bought back more with a decent 3% weight at $245, $257 just before earning on Aug 12,13.(average cost $247) So now I am happy to sit with a 3% weight with a good risk/reward ratio. Its valution is not expensive like Snowflake so it’s reasonable for me to bought a 3% right at the start. So next time.

Also english is not my first language, please excuse my grammar and spelling mistakes.

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I see where the confusion comes from for net dollar retention rate. They have two numbers: one is for all customers. one is for customers with more than 10 users.

This is for all customers:
Net dollar retention for all customers was 100%, 105% and 107% for the three months ended December 31, 2019 and 2020 and March 31, 2021, respectively.

This is for customers with more than 10 users:
Q1 March 31, 2021 Net dollar retention for customers with 10+ users, was 121%.

Q2, 2021: The net dollar retention rate for customers with more than 10 users was over 125%.

So for customers with 10+ users, the net dollar retention rate is up 4% from last quarter.

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Hi CloudL

Definitely lots to consider here. As an Asana holder (2%) having jumped horses mid race from Smartsheets to Asana (in time for a 200% takeoff), I have to challenge myself why I wouldn’t do the same with Monday now that they are growing faster and are within a quarter of overhauling Asana’s TTM lead.

I would certainly be looking at comparing all the input variables that Saul would evaluate including:
Revenues
Growth rate
Gross Margin
Dollar Based Net Expansion Rate
Retention rate
Net Margin
NPS

…as well as use cases across market segments. If I thought Asana was throwing caution to the wind with their Advertising and Promotional spend then Monday went off the deep end but it seems to be paying off for them.

Ant

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Following up on my introduction of Monday’s IPO [1], its first quarterly earnings was well received by the market, sending its share price +24%. I’d like to highlight a few specific points from CloudL’s summary.

(1) Revenue Growth of 94% YoY not only represents a significant acceleration from last quarter’s 85%, but also the strongest sequential growth (19.7%) in six quarters. All while increasing its non-gaap gross margin to 90% (from 88% this time last year). Deferred revenue is up 16% sequentially, down from 24% the previous quarter. This could be driven by seasonality – we just don’t have enough data to evaluate yet.

(2) There is strong evidence of strong upsell momentum, with net-dollar retention rising from 121% last quarter to 125% for customers with >10 users. It is important to keep track of this customer cohort for Monday, as it represented 65% of ARR as of last quarter (and has been steadily rising). Further evidence exists by their enterprise customers reaching 470, up 226% YoY (+40% sequentially!!) [1]

(3) Profitability path is becoming less murky, evidenced by the shrinkage of its operating margin. Also its important to see S&M spend representing 79% of revenue, down from 101% last year [2]. This was driven “primarily by lower marketing spend as we are becoming more efficient, allocating our marketing spend to focus on customers with 10+ users and enterprise customers.” Revenue growth also outpaced R&D and G&A spend. However, we should probably not expect this this smooth trajectory to continue, as the CFO mentioned how “we are not trying to optimize cost, we are going to continue investing aggressively…we’re going to continue hiring aggressively, there will be salary increases, we’re going to have events by the end of the year…there will be cost opportunities and we’re working in accordance with our growth phase operating model”

This was only Monday’s first public quarter, but there’s plenty of optimism for continued hypergrowth in the space. This report also raised expectations for Asana, which is set to report September 1st [3]. Asana’s share price has already more than doubled since its last earnings report – so I suspect they will have to knock it out of the park for the market to be pleased with their results [3].

Regardless, what’s clear is that is that as companies of all shapes and sizes move towards a hybrid / remote work environment, project management and collaboration software is an imperative need. Anecdotes can be trivial, but everyone I know at a start-up or scale-up uses either Asana or Monday. And while this niche might not seem as part of the central nervous system of a company like cybersecurity or analytics might be, I think we’ll continue seeing plenty of tailwinds in the near-term.

-RMTZP
Please read this before posting https://discussion.fool.com/we39re-drifting-34904974.aspx and visit
https://discussion.fool.com/for-board-newcomers-and-oldtimers-34… to maximize your learning of the board

[1] https://discussion.fool.com/project-management-software-overlook…
[2] Defined as >$50k ARR, as opposed to the more traditional milestone of >$100k
[3] Calling out this metric as its one that’s worried many investors in particular within this sector
[4] wsm007 posted a phenomenal summary here https://discussion.fool.com/revisiting-asana-q1-2022-and-qa-3486…

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I have been following MNDY for a few weeks, however, have taken no position due to the fact that I wanted to see their first few quarterly reports.

In my watchlist notes, after reading the S1, I did note good growth and GMs, however, a very large spend on S&M.

Some of these recent numbers look impressive and there is a somewhat compelling bull case based on the numbers so I have decided dive a little deeper. In doing so I found this article posted on seeking alpha:

https://seekingalpha.com/article/4434652-monday-com-ipo-a-to…

It is written by Trading Places Research (I cannot comment on their reliability, maybe someone else can?)

They sum up a number of points from the article, some that that concern me are;

  1. Even in the context of enterprise SaaS businesses, monday has an extraordinarily high spend on sales and marketing to keep revenue growing fast.

The comments made about feeding growth in the main body of the article have me concerned;

‘Growth companies need to show revenue growth, or people may be loath to buy their stock. One way of doing this is luring in large customers with steep price reductions off the listed price. The retail price gets sent to revenues, and the cost of the rebate goes into cost-of-goods, but usually sales and marketing.’

(Me)The writer calls this an attempt to ‘Juice Revenue’. The desire to do so seems fairly logical, but leaves a sour taste in the mouth. Is this the norm for these companies in today’s LAND and EXPAND business model? It seems a bit short term in a market that is this competitive.

  1. The founder share is odd.

‘Upon the consummation of this offering, Roy Mann, one of our Co-Founders and Co-Chief Executive Officers and a member of our board of directors, will hold one founder share.

  • monday prospectus

That founder share entitles him to veto power over many important decisions, so long as he holds his stock, doesn’t get fired, or die. Needless to say, this is highly unusual.

Consequently, Mr. Mann will be able to control certain key corporate decisions, thus limiting the ability of the holders of our ordinary shares to influence certain key matters affecting our business.’

(Me) This seems odd to me also. Can anyone shed light on why it might be normal?

Interested to hear thoughts.

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Hi Smugley,

The author uses lots of jargon and seems knowledgable.

However, his argument about Monday.com shouldn’t have a larger market cap than Asana, Smartsheet because it has lower revenue than the latters is flawed. Anyone invested in growth stocks for a while understands that everything being equal, a higher revenue growth rate justifies a higher market cap. At one point, Zoom has higher market cap than IBM and many value investors screamed about it. Even after correction, ZOOM still is $100B cap and very close to IBM’s $125B cap. yet if you look at the revenue, Zoom 4B annual revenue is much lower than IBM 80B annual revenue. Why? Because IBM’s revenue has been going downhill for past few years. Zooom is still growing at a respectable rate of 38% per year and profitable! He sounds like a value investor to me.

Because of this, he loses the credibility to comment on growth stocks and how expensive Monday.com is and why he wouldn’t buy it at $190. BTW, I bought at $170. Guess what the stock price is now? $355. It’s a 87% up from the price he wouldn’t buy.

I bought another expensive stock recently: DLOCAL. It’s even more expensive than Monday.com, nosebleeding expensive. I bought a 5% position and paid a $50 price. It’s up 24% after hours.

Hyper growth company chooses how much to spend on marketing. It’s their choice. As Saul point out, they can turn a profit anytime they want buy cutting expenses. Monday’s gross margin is 87%! Again, I doubt Monday issues rebate to customers. I used to work as a purchaser for an IT company. Usually, only hardware vendors issue rebate not software companies. He speaks in way of: “one way to juice the revenue is by issueing rebate” as if it’s a fact for Monday.com. I don’t think so.He’s full of conspiracy theories. It’s just speculations. Not facts. There’s no evidence Monday.com uses rebate. I googled “Monday.com and rebate”. Nothing came up. Unless you can list the source.

He also contradicts himself. He uses and likes the Monday.com platform yet saying he won’t buy the stock because he doesn’t understand how to invest in hyper growth. He also said Monday belongs to MEME stock crowd. Just wow! He’s so out of touch with reality. If a company gets more customers than competitors, it means the product is good. Consequently, the company will be successful.

For the founder share control, it’s all about controlling the company. He dosn’t want the shareholders to run the company. Some founders are obsessed with how to run the company and doesn’t want share holders to change that. Elon Musk will be such people.

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I’ll play devil’s advocate with the revenue figures.

  1. How fast is revenue growth slowing? Looks like it could be slowing in the second half.
  2. Was 2Q2021 the peak YoY growth, right about the time of IPO? (How well was Q2 revenue already known to them when they IPO’d in June?)

The challenge may be how much sandbag is present (or not) in guidance. Just an interesting further observation (I don’t think this indicates sandbag or not, no idea) > how the guidance is very precise in that it has a small range, only $1 to $2m between lower and upper guidance, which strikes me as a slightly silly level of precision if they are intending to be off with a sandbag by $5m or more (maybe this is common in guidance, I don’t know, I haven’t noticed this until now).

For the third quarter of the fiscal year 2021, monday.com currently expects:
Total revenue of $74 to $75 million, representing year-over-year growth of 74% to 76%.
For the full year 2021, monday.com currently expects:
Total revenue of $280 million to $282 million, representing year-over-year growth of 74% to 75%.

**[monday.com](http://monday.com) revenue** 
**(some rounding, G is guidance, M is implied from guidance)**
**Q1	Q2	Q3	Q4	FY**
2020	32	36	43	50	161
2021	59	71	75G	76M	281G

QoQ		13%	19%	16%
	18%	20%	6%G	1%M

YoY	84%	91%	74%G	52%M	74%G
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CloudL,

‘Anyone invested in growth stocks for a while understands that everything being equal, a higher revenue growth rate justifies a higher market cap. At one point, Zoom has higher market cap than IBM and many value investors screamed about it. Even after correction, ZOOM still is $100B cap and very close to IBM’s $125B cap. yet if you look at the revenue, Zoom 4B annual revenue is much lower than IBM 80B annual revenue. Why? Because IBM’s revenue has been going downhill for past few years. Zooom is still growing at a respectable rate of 38% per year and profitable! He sounds like a value investor to me.’

Good point here, thank you for clarifying. Investors are paying a higher price for the growth of the revenue so far and the forecasted growth.

‘Hyper growth company chooses how much to spend on marketing. It’s their choice. As Saul point out, they can turn a profit anytime they want buy cutting expenses. Monday’s gross margin is 87%!’

Very clear on this, S&M is something that these companies can turn off and on at will and I also understand the link between S&M and revenue growth. I’m happy to see a large S&M in these companies.

‘Again, I doubt Monday issues rebate to customers. I used to work as a purchaser for an IT company. Usually, only hardware vendors issue rebate not software companies. He speaks in way of: “one way to juice the revenue is by issuing rebate” as if it’s a fact for Monday.com. I don’t think so. He’s full of conspiracy theories. It’s just speculations. Not facts. There’s no evidence Monday.com uses rebate. I googled “Monday.com and rebate”. Nothing came up. Unless you can list the source.’

So this part is where I have the specific issue, but what you’re saying is that it’s pure speculation; no evidence. And because you have first-hand experience, it’s probable that his theory is flawed.

‘He also contradicts himself. He uses and likes the Monday.com platform yet saying he won’t buy the stock because he doesn’t understand how to invest in hyper growth. He also said Monday belongs to MEME stock crowd. Just wow! He’s so out of touch with reality. If a company gets more customers than competitors, it means the product is good. Consequently, the company will be successful.’

Ok so here we are basically saying that the writer is lacking credibility and as such we discard this information.

‘For the founder share control, it’s all about controlling the company. He doesn’t want the shareholders to run the company. Some founders are obsessed with how to run the company and doesn’t want share holders to change that. Elon Musk will be such people.’

Ok, nothing to worry about here then.

So to sum up;

The article lacks credibility due to some of the inaccuracy of the content.

You have first-hand experience of the marketplace and your anecdotal evidence supports this.

This information should be discarded and there is little risk that the when the S&M is reduced in the future, customers might move to one of the cheaper providers in the market.

Thanks for your thoughts. It has helped me clear up my thinking.

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Hello All

I found this board this month only, and have been trying to absorb as much as possible. Thanks so much for the teachings!

Great analysis and I am sold. Just one question though. I know it’s highlighted not to look too much into valuation but the P/S ratio is extremely high at 60-70. I know we shouldn’t compare against other sector, but even Upstart with out of the world earnings has P/S around 38.

What’s your take on this, and sorry if it’s a stupid question.

Thanks!

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Hi Omnisilent,
One way to value growth stocks is by looking at the (Market cap)/(Annual gross profit ratio)

Legendary investor Peter Lynch uses the PEG ratio to value growth stocks.

PEG ratio = (Price/earning ) / Growth rate(less the percentage sign) = A
If A is less than 1, it’s under valued. If it’s equal to 1, it’s fairly valued. If it’s over 1, it’s over valued.

There’s a different variations of Peter Lynch PEG ratio.
Here’s how I and many others value growth stocks:

For our hyper growth companies, since most of them don’t show earnings, we use annual gross profit instead(current quarter gross profit x 4). The reason we should use gross profit instead of revenue is to taking into account of different gross profit margin.

Remember, this is estimation only. if we have some amazing companies and amazing growth prospect and large addresaabl emarket, this can be way over 1.

let’s use one example: GLBE (Global E) which I hold a small position.

Gross profit form last quarter: 20.6 m times 4, we get 82 m

If we divide the market cap 11 B by 82m, the ratio 134 is insanely high. Despite the high valuation, the stock performed reall well and today the stock popped again. The reason is simple: the revenue growth rate is insanely fast. Average QoQ sequential growth rate for past 4 quarter is: 42%! 300% annualized. The average annual growth rate is: 88%. So its growth is accelerating. On top of this, there’s shopify stake and the large addressable market. Therefore it’s giving a rich valuation.

What I observed over the years is: good stocks are expensive for good reasons. Mediocre stocks are cheap for bad reasons. Value investors from the Benjamin Ghrame camp will dismiss so many amazing growth stocks because of their “insane” valuation which they only look at low PE ratios as good thing to have.

Using this method, I can find many under valued growth stocks growing at 30% per year but valued at half of normal valuation and have potential 100% upside in short time. It’s very tempting to own them all but We don’t have to. So I try not to hoard stocks! one under valued example is: taskus. I bought a small position at $31.85 in June and now it’s trading at $55. I sold it early because I try to not hoarding more and more stocks.

More reading here:
https://www.thebalance.com/peter-lynch-s-secret-formula-for-…

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