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Monday.com (NASDAQ:MNDY) Q3: Strong Sales, Optimistic Guidance


Full Report / November 18, 2021
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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.

Monday.com (MNDY) Q3 FY2021 Highlights:

  • Revenue: $83 million vs analyst estimates of $74.6 million (11.1% beat)
  • EPS (non-GAAP): -$0.26 vs analyst estimates of -$0.60
  • Revenue guidance for Q4 2021 is $87.5 million at the midpoint, 13.4% above analyst estimates of $77.1 million
  • Free cash flow of $180 thousand, up from negative free cash flow of $1.48 million in previous quarter
  • Net Revenue Retention Rate: 130%, up from 125% previous quarter
  • Customers: 613 customers paying more than $50,000 annually
  • Gross Margin (GAAP): 87.6%, up from 85.1% same quarter last year


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. While the trend of collaborative work management has been strong for a while, the Covid pandemic has definitely 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 year, growing from quarterly revenue of $42.5 million, to $83 million.

Monday.com Total Revenue

This was another standout quarter with the revenue up a splendid 94.9% year on year. On top of that, revenue increased $12.4 million quarter on quarter, a solid improvement on the $11.6 million increase in Q2 2021, and happily, a slight acceleration of growth.

Analysts covering the company are expecting the revenues to grow 41.6% over the next twelve months, although estimates are likely to change post earnings.

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 130% in Q3. That means even if they didn't win any new customers, Monday.com would have grown its revenue 30% year on year. Significantly up from the last quarter, 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.

Profitability

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 87.6% in Q3.

Monday.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.87 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year 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.

Key Takeaways from Monday.com's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Monday.com’s balance sheet, but we note that with a market capitalization of $19.6 billion and more than $876.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly Monday.com outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. But investors might have been expecting more and the company is down 0.56% on the results and currently trades at $443 per share.

Is Now The Time?

Monday.com may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. 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. And while its cash burn raises the question if it can sustainably maintain its growth, the good news is its impressive gross margins are indicative of excellent business economics, and its efficient customer acquisition is better than many similar companies.

Monday.com's price to sales ratio based on the next twelve months of 53.6x indicates that the market is certainly optimistic about its growth prospects. There is definitely a lot of things to like about Monday.com and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

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