Monday.com (NASDAQ:MNDY) Q3 Sales Beat Estimates, Stock Soars

Full Report / November 13, 2023

Project management software maker Monday.com (NASDAQ:MNDY) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue up 38.2% year on year to $189.2 million. Guidance for next quarter's revenue was also better than expected at $197 million at the midpoint, 1% above analysts' estimates. Turning to EPS, Monday.com made a GAAP profit of $0.15 per share, improving from its loss of $0.51 per share in the same quarter last year.

Monday.com (MNDY) Q3 FY2023 Highlights:

  • Revenue: $189.2 million vs analyst estimates of $182.5 million (3.7% beat)
  • EPS (non-GAAP): $0.64 vs analyst estimates of $0.21 (212% beat)
  • Revenue Guidance for Q4 2023 is $197 million at the midpoint, above analyst estimates of $195 million
  • Free Cash Flow of $64.89 million, up 41.3% from the previous quarter
  • Net Revenue Retention Rate: 115%, down from 120% in the previous quarter
  • Customers: 2,077 customers paying more than $50,000 annually
  • Gross Margin (GAAP): 88.5%, up from 87% in the same quarter last year

Founded in Israel in 2014, and named after the dreaded first day of the work week, Monday.com (NASDAQ:MNDY) makes software as a service platforms that helps teams plan and track work efficiently.

A lot of project planning and management work is still done with a mixture of emails, spreadsheets that only exist on one person’s computer, hand written notes and in-person meetings. As a result, a lot of time is lost tracking down who does what, when, and how, with team managers organizing multiple meetings to get accurate updates on the progress of a project.

To help companies better plan their work, Monday.com provides them with a centralized online dashboard where tasks can be created, assigned and tracked. The platform integrates with other applications such as email, calendar or online document storage and is able to automate basic workflows such as sending emails when a task is due or importing information from a document. The key point is that the project management software becomes a system of record for the whole team, a central place where the information is always available and up to date. To make project managers even more efficient, Monday.com also provides them with a number of reusable templates that make it easy for them to create marketing dashboards, budget calculators and manage approval flows.

For example when developing a video game, the project manager can set up all the tasks in Monday.com including cost estimates and ask the client for approval on each of them. Once the work begins, the company management can see what the engineering team is working on in real time, and using the cost vs time tracking can easily tell if there’s a chance the cost might be higher than what was initially calculated.

Project Management Software

The future of work requires teams to collaborate across departments and remote offices. Project management software is both driving this change and benefiting from it. While the trend of collaborative work management has been strong for a while, the Covid pandemic has definitively accelerated the demand for tools that allow work to be done remotely.

Other competitors in the project management space include Smartsheet (NYSE:SMAR), Asana (NYSE:ASAN), and Trello which is owned by Atlassian (NASDAQ:TEAM).

Sales Growth

As you can see below, Monday.com's revenue growth has been incredible over the last two years, growing from $83.02 million in Q3 FY2021 to $189.2 million this quarter.

Monday.com Total Revenue

Unsurprisingly, this was another great quarter for Monday.com with revenue up 38.2% year on year. Quarter on quarter, its revenue increased by $13.51 million in Q3, which was roughly in line with the Q2 2023 increase. This steady growth shows that the company can maintain a strong growth trajectory.

Next quarter's guidance suggests that Monday.com is expecting revenue to grow 31.4% year on year to $197 million, slowing down from the 56.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 26.8% over the next 12 months before the earnings results announcement.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Monday.com Net Revenue Retention Rate

Monday.com's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 115% in Q3. This means that even if Monday.com didn't win any new customers over the last 12 months, it would've grown its revenue by 15%.

Despite falling over the last year, Monday.com still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Monday.com's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 88.5% in Q3.

Monday.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.89 left to spend on developing new products, sales and marketing, and general administrative overhead. Monday.com's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Monday.com is controlling its costs and not under pressure from its competitors to lower prices.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Monday.com's free cash flow came in at $64.89 million in Q3, up 365% year on year.

Monday.com Free Cash Flow

Monday.com has generated $179.2 million in free cash flow over the last 12 months, an impressive 26% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.

Key Takeaways from Monday.com's Q3 Results

Sporting a market capitalization of $6.76 billion, Monday.com is among smaller companies, but its more than $1.05 billion in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was good to see Monday.com beat analysts' revenue expectations and show impressive free cash flow. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. On the other hand, its net revenue retention fell. Zooming out, we think this was a strong quarter, showing that the company is staying on track to profitability, while still growing fast. The stock is up 9.7% after reporting and currently trades at $154 per share.

Is Now The Time?

When considering an investment in Monday.com, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think Monday.com is a great business. While we'd expect growth rates to moderate from here, its revenue growth has been exceptional over the last two years. Additionally, its impressive gross margins indicate excellent business economics, and its bountiful generation of free cash flow empowers it to invest in growth initiatives.

The market is certainly expecting long-term growth from Monday.com given its price to sales ratio based on the next 12 months is 8.4x. Looking at the tech landscape today, Monday.com's qualities really stand out, and we really like it at this price.

Wall Street analysts covering the company had a one-year price target of $199.6 per share right before these results, implying that they saw upside in buying Monday.com even in the short term.

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