Monday.com (MNDY)

Project management software maker Monday.com (NASDAQ:MNDY) announced better-than-expected revenue in Q1 CY2025, with sales up 30.1% year on year to $282.3 million. The company expects next quarter’s revenue to be around $293 million, close to analysts’ estimates. Its non-GAAP profit of $1.10 per share was 56.4% above analysts’ consensus estimates.

Company Overview

Founded in 2014 and named after the dreaded first day of the work week, Monday.com (NASDAQ:MNDY) is a software-as-a-service platform that helps organizations plan and track work efficiently.

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.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Monday.com’s 42.6% annualized revenue growth over the last three years was incredible. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Monday.com reported wonderful year-on-year revenue growth of 30.1%, and its $282.3 million of revenue exceeded Wall Street’s estimates by 2.3%. Company management is currently guiding for a 24.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 23.2% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is healthy and indicates the market sees success for its products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Monday.com’s ARR punched in at $1.13 billion in Q1, and over the last four quarters, its growth was fantastic as it averaged 32.4% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Monday.com a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

This quarter, Monday.com reported 3,444 enterprise customers paying more than $50,000 annually, an increase of 243 from the previous quarter. That’s a bit fewer contract wins than last quarter but quite a bit above what we’ve seen over the last 12 months. We’ve no doubt shareholders would like to see the company accelerate its sales momentum.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Monday.com is very efficient at acquiring new customers, and its CAC payback period checked in at 27.8 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Monday.com more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

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

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 113% in Q1. This means Monday.com would’ve grown its revenue by 12.7% even if it didn’t win any new customers over the last 12 months.

Trending up over the last year, Monday.com 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 model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Monday.com’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 89.5% gross margin over the last year. That means Monday.com only paid its providers $10.51 for every $100 in revenue.

Monday.com produced a 89.8% gross profit margin in Q1, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Monday.com was roughly breakeven when averaging the last year of quarterly operating profits, mediocre for a software business. This result is surprising given its high gross margin as a starting point.

On the plus side, Monday.com’s operating margin rose by 2.1 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Monday.com generated an operating profit margin of 3.5%, up 5.8 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Monday.com has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 30.4% over the last year. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Monday.com’s free cash flow clocked in at $109.5 million in Q1, equivalent to a 38.8% margin. The company’s cash profitability regressed as it was 2.6 percentage points lower than in the same quarter last year, but it’s still above its one-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

Over the next year, analysts predict Monday.com’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 30.4% for the last 12 months will decrease to 26.1%.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Monday.com is a well-capitalized company with $1.59 billion of cash and $122.5 million of debt on its balance sheet. This $1.47 billion net cash position is 10.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Monday.com beat analysts’ revenue  and operating income expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter was in line. Zooming out, we think this was a solid quarter. The stock traded up 7% to $297.43 immediately following the results.

Updated: June 12, 2025 at 10:16 PM EDT

Before making an investment decision, investors should account for Monday.com’s business fundamentals and valuation in addition to what happened in the latest quarter.

Monday.com is a high-quality business worth owning. For starters, its revenue growth was exceptional over the last three years. And while its forecasted free cash flow margin suggests the company will ramp up its investments next year, its bountiful generation of free cash flow empowers it to invest in growth initiatives. On top of that, Monday.com’s admirable gross margin indicates excellent unit economics.

Monday.com’s price-to-sales ratio based on the next 12 months is 12.3x. Looking across the spectrum of software companies today, Monday.com’s fundamentals shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $349.20 on the company (compared to the current share price of $300), implying they see 16.4% upside in buying Monday.com in the short term.