monday.com (NASDAQ:MNDY) Posts Better-Than-Expected Sales In Q3, Stock Soars

Full Report / January 11, 2023
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Project management software maker Monday.com (NASDAQ:MNDY) reported Q3 FY2022 results that beat analyst expectations, with revenue up 64.8% year on year to $136.8 million. Guidance for next quarter's revenue was $141 million at the midpoint, which is 1.69% above the analyst consensus. monday.com made a GAAP loss of $23 million, improving on its loss of $28.8 million, in the same quarter last year.

monday.com (MNDY) Q3 FY2022 Highlights:

  • Revenue: $136.8 million vs analyst estimates of $130.4 million (4.94% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of -$0.54 ($0.59 beat)
  • Revenue guidance for Q4 2022 is $141 million at the midpoint, above analyst estimates of $138.6 million
  • Free cash flow of $13.9 million, up from negative free cash flow of $19.2 million in previous quarter
  • Net Revenue Retention Rate: 135%, in line with previous quarter
  • Customers: 1,323 customers paying more than $50,000 annually
  • Gross Margin (GAAP): 86.9%, in line with 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.

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 quarterly revenue of $42.5 million in Q3 FY2020, to $136.8 million.

monday.com Total Revenue

This was another standout quarter with the revenue up a splendid 64.8% year on year. But the growth did slow down a little compared to last quarter, as monday.com increased revenue by $13.1 million in Q3, compared to $15.2 million revenue add in Q2 2022. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Guidance for the next quarter indicates monday.com is expecting revenue to grow 47.5% year on year to $141 million, slowing down from the 90.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 34% over the next twelve months.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

monday.com Net Revenue Retention Rate

monday.com's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 135% in Q3. That means even if they didn't win any new customers, monday.com would have grown its revenue 35% year on year. Trending up over the last year, this is a great retention rate and a clear proof of a great product. We can see that monday.com's customers are very satisfied with their software and are using it more and more over time.


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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 86.9% in Q3.

monday.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.86 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like monday.com to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that monday.com is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. monday.com's free cash flow came in at $13.9 million in Q3, up 7.7 thousand% year on year.

monday.com Free Cash Flow

monday.com has burned through $11.4 million in cash over the last twelve months, resulting in a negative 2.45% free cash flow margin. This below average FCF margin is a result of monday.com's need to invest in the business to continue penetrating its market.

Key Takeaways from monday.com's Q3 Results

With a market capitalization of $4.29 billion monday.com is among smaller companies, but its more than $852.5 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We were impressed by the exceptional revenue growth monday.com delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company currently trades at $104.86 per share.

Is Now The Time?

When considering monday.com, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think monday.com is a good business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its customers are increasing their spending quite quickly, suggesting that they love the product.

The market is certainly expecting long term growth from monday.com given its price to sales ratio based on the next twelve months is 7.0x. There is definitely a lot of things to like about monday.com and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $163.6 per share right before these results, implying that they saw upside in buying monday.com even in the short term.

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