Monday.com Research

Investment Analysis Clubs Saul’s Investing Discussions
1

Hi All,

I took a small starter position in Monday.com very recently and I thought it might be helpful to share some of my research. CloudL introduced the company to the board a few weeks back.

Just to recap, The company is a provider of no code and low code software services. It utilizes modular building blocks that allow users to create their own software applications and work management tools. These modular building blocks include integrators, boards, forms, workspaces, automations, dashboards, and more. This process is all accomplished through an operating system called Work OS and all of this work is done in the cloud.

  1. Amazing Functionality

I’m not an expert in the field of B2B SaaS software applications but I am impressed with the functionality and flexibility that Monday.com offers. It allows you to start with a small team and expand. It supports just about any type of vertical and it integrates with Mailchimp, Slack, Twilio, Zoom, Salesforce, Adobe, Jira, Gmail, Dropbox, Github, etc.

It’s main distinguishing feature is that it’s more modern then then most project management tools in that it allows people to build their own software and scale as needed. Instead of the business having to change processes to suit the software, the software can be modified for a business’s unique needs. As co-CEO Roy Mann noted in the Q2 conference call “If the last 10 years were defined by the SaaS cloud, then the next 10 years will be focused on giving people the power to create software that treats their own needs.”

Monday.com has a net promoter score of 58 and received a top rated review from The Blueprint, Motley Fool’s business and software advice arm.

https://www.fool.com/the-blueprint/mondaycom-review/

See the Videos below if you’d like to learn more

Product Demo

https://www.youtube.com/watch?v=0tYeGbMwwuM

Work OS

https://www.youtube.com/watch?v=yjOU3KTYHhw

How to use Monday.com | Day-to-day Project Management (Monday Tutorial for Beginners)

https://www.youtube.com/watch?v=piDQKQmr2H4

  1. Large and expanding TAM

From the S-1: “Our Work OS is broadly applicable for any organization and team across a growing number of use cases. According to estimates from IDC, our total addressable market was $56.1 billion in 2020 and will grow to $87.6 billion in 2024, representing a 4-year compounded annual growth rate (“CAGR”) of 12%.”

  1. Amazing Numbers - Q2 was the companies first report as a public company and the results very impressive.

-Revenue up 94% YoY ($70.6 million), up from 85% in Q1 ($59 million)

-The gross margin came in at 89.7% up from 88.3% in the year-ago quarter. Wow, that is the highest I can remember since Alteryx!

-This company is a major cash burner but it did show progress on its path to profitability. non-GAAP operating margin improved from -41% to -14%

-Sales and marketing expenses were $55.5 million or 79% of revenue compared to 101% in the year-ago quarter.

-Its adjusted net loss per share, in turn, narrowed to $0.26 from $0.39 in the year-ago quarter.

-Cash, cash equivalents, short-term deposits and restricted cash was $878.0 million and no debt

-NDRR was 125% for customers with 10 users or more

-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.

“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.” said CFO Eliran Glazer.

Strong Outlook

3rd quarter Financial Outlook:

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%.

  1. A Great Culture

Glassdoor ratings 90% would recommend to a friend and 95% approve of the CEO. Overall 4.6 stars.

https://www.glassdoor.com/Overview/Working-at-monday-com-EI_…

  1. Strong Leadership

Co-Founder and co-CEO Roy Mann previously served as a senior technology leader at Wix.com Ltd. (Nasdaq: WIX), from 2010 to 2012 and from his resume he looks like an experienced Executive and Entrepreneur.

Interview on TD Ameritrade Network

https://www.youtube.com/watch?v=ATWwDnD8J3M&t=4s

Co-Founder and co-CEO Eran Zinman has also founded other companies and looks to be an experienced guy.

Short Interview on CNBC

https://www.youtube.com/watch?v=Tf-e6Ux02w4

Several of the those in management and even the General Counsel came from Wix, a long time Tom Gardner recommendation.

https://ir.monday.com/corporate-governance/management-team

  1. Strong Backers and Partners

Monday.com was originally conceived of and used inside of web development company Wix. As part of its IPO, both Zoom Video Communications (ZM) and Salesforce.com (CRM) invested $75 million into the business. Salesforce acquired Slack in Dec for $27.7 Billion

Other articles to reference:

Jamin Ball on the Monday.com S1

https://cloudedjudgement.substack.com/p/mondaycom-benchmarki…

-FoolishJeff

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2

Hi FoolishJeff

I have been looking at Monday.com and Asana a fair bit over the past few weeks. Its clear that they are the two leaders in this new workflow software space, so I am trying to work out which horse to back.

Monday.com clearly has the momentum with the recent earnings and revenue growth, and smaller losses, but Asana may well match them when they report this week.

In your research, did you come across anything else that swayed you towards Monday.com aside from the revenue and costs?

Thanks

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Hi Andrew - Ant here not Jeff…

I literally made the switch from Asana to Monday based on:

  1. Higher accelerated growth rate
  2. Superior bottom line progress and operating leverage
  3. Overtaking next quarter guidance and NTM revenues and therefore market leadership
  4. Product reviews of the 2 competitors

I felt a bit callous as Asana had been good to me in a short period of time (200%+) gain and had been the software I had come in to contact more but Monday represented the better prospect for the above reasons at roughly the same market cap.

Ant

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I personally went with Asana because they were started by the well-connected founder/CEO in Dustin Moskovitz.

If you don’t know who is:

https://en.wikipedia.org/wiki/Dustin_Moskovitz
“Dustin Aaron Moskovitz is an American Internet entrepreneur who co-founded Facebook with Mark Zuckerberg, Eduardo Saverin, Andrew McCollum and Chris Hughes. In 2008, he left Facebook to co-found Asana with Justin Rosenstein. In March 2011, Forbes reported Moskovitz to be the youngest self-made billionaire in history, on the basis of his 2.34% share in Facebook.”

Asana is (or was at the last ER) about double the size of Monday and I would describe their product as being a better fit for true enterprises. Monday is more of an SMB play which I think will experience higher churn than Asana. Monday does not break out how many customers they have that pay more than $100K. In fact, they say, “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.”

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I prefer Monday.com for its low code/no code structure, which more non-IT users can program process and software. It is also very developer friendly. I think it will be a major player in RPA field, may compete with company like UiPath.

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My thought:

When choosing two competitors, I decide which one to buy based on business result, not who’s CEO is more famous. Monday’s past growth rate is faster than Asana. Anecdotally, the bearish Seeking Alpha author ranked Monday’s product as number one and Asana as last. I also checked both Monday’s and Asana’s Youtube account, Monday has approximately 50% more subscribers. So, it’s apparent to me that Monday is growing faster.

As for the tech Strenth, Monday’s platform is customisable. Their message: In the old days, humans adapt to software. In the new days, software adapts to humans.

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Hi CloudL,

Here are a few counterpoints to considers:

  1. Monday is focused on SMB customers and is a giant (massive!) spender on YouTube advertising. That would explain the YouTube channel follower number, I don’t think it’s an accurate measure of which company is growing faster.

  2. A well-connected founder/CEO with a proven track record of success does have value. While it’s hard to quantify it can provide an edge when it comes to recruiting top engineering talent, securing key customers, and negotiating with investors.

  3. Monday may or may not be growing faster. Asana will report tomorrow. And then we will have all the facts. Keep in mind that Monday is growing off a smaller base of SMBs.

I am by no means saying Monday is a bad investment. So far it’s proven to be a great one. I may even buy into it as well as Asana. We will see what the Asana ER looks like tomorrow. At this stage, there is room in the market for both players. Thanks.

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Monday is more of an SMB play which I think will experience higher churn than Asana. Monday does not break out how many customers they have that pay more than $100K. In fact, they say, "No single customer accounted for more than 1% of revenue…

Hi GolfCaddy, Isn’t that being a little nitpicky? In their last nine quarters Monday’s customers over $50K were an ASTOUNDING 23, 46, 76, 105, 144, 185, 264, 335, 470.

Thus they went from 23 to 470 in exactly TWO YEARS, up twenty times !!!

Some other little tidbits were that this quarter they grew the number by 226% yoy, and 40% sequentially!!! Those are astounding numbers!!!

And by the way Asana didn’t break out how many customers they had over $100K either. A glance at their last report shows that they also break out customers over $50K!

Asana is (or was at the last ER) about double the size of Monday

Actually they are the same size with Monday about to pass Asana. Asana’s last revenue was $77 million and Monday’s was $71 million and Asana was growing revenue at 61% while Monday was growing at 94%.

Asana’s customers over 50K were 495 to Monday’s 470 (hardly double the size), and Asana was growing at 92% to Monday’s 226%.

Who do YOU think is winning.

Saul

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Saul, GolfCaddy,

You are two of the most respected members of the board, for now apparently at least somewhat on different sides of Asana vs. Monday.

I am still in learning mode and have a question for you about spend for both of them.

What I learned from Motley Fool and believe in, having come from the tech world, is you really need to spend on R&D to keep growing. Specifically, your R&D spend should be rising at least as much as your sales growth and of course your marketing etc should go down over time

SGA spend not including R&D, even now, is still GREATER than revenues for both Monday and Asana. In other words, Monday has to spend more than 1 dollar in basically marketing (because R&D not included) to make 1 dollar. And so does Asana. See numbers below.

The reason I am wondering is that I don’t think the switching costs are as high to move out of a project management software product. So while I could imagine this is justified for companies with high switching costs, to grab the customers, why is it justified in this case? Or is this always the case for young companies?

This seems to me to be important, but I defer to your experience. Can you share why you don’t worry about this? Is it because it is declining? Or is it because shorter term, as long as it’s working and the stock is growing, it doesn’t matter?

Thanks
Monika

(When I say sales I mean revenues… all numbers last 5 quarters)

MONDAY
SG&A as a percent of sales: 129 151 187 125 103
R&D as a percent of sales: 35 30 23 26 23

ASANA
SGA as a percent of sales: 101 101 137 104 103
R&D as a percent of sales: 47 50 56 58 52

FOR COMPARISON, THREE OF OUR FAVORITES:

CRWD
SGA as a percent of sales: 64 62 58 55 57
RD as a percent of sales: 23 25 25 25 25

DDOG
SGA as a percent of sales 46 47 44 43 40
RD as a percent of sales 33 36 38 40 41

UPST
SGA as a percent of sales: 118 65 71 71 64
RD as a percent of sales: 44 15 16 16 16

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I stand corrected on the 50K+ customers. Thanks for pointing that out Saul.

As I said, we will see what Asana reports tomorrow. I am a fan of both :slight_smile:

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