Monday.com - Benchmarking the S-1 Data

Yesterday Monday.com filed their initial S1 statement. A S-1 is a document companies file with the SEC in preparation for listing their shares on an exchange like the NYSE or NASDAQ. The document contains a ton of information on the company including a general overview, up to date financials, risk factors to the business, cap table highlights and much more. The purpose of the detailed information is to help investors (both institutional and retail) make informed investment decisions. There’s a lot of info to digest, so in the sections below I’ll try and pull out the relevant financial information and benchmark it against current cloud businesses. As far as an expected timeline - typically companies launch their roadshow ~3 weeks after filing their initial S-1 (the roadshow launches with an updated S-1 that contains a price range). After the roadshow launch there’s typically ~2 weeks before the stock starts trading. So we’re looking at roughly 5 weeks before any retail investor can buy the stock.

Monday.com Overview

From the S1 - “monday.com democratizes the power of software so organizations can easily build software applications and work management tools that fit their needs. We call our platform ‘Work OS’, and we believe we are pioneering a new category of software that will change the way people work and businesses operate. Our platform consists of modular building blocks that are simple enough for anyone to use, yet powerful enough to drive the core functionality within any organization. Our platform also integrates with other systems and applications, creating a new connective layer for organizations that links departments and bridges information silos. By using our platform, our customers can simplify and accelerate their digital transformation, enhance organizational agility, create a unifying workspace across departments, and increase operational efficiency and productivity.”

Product Overview

From the S-1: “With our Work OS, organizations can build software applications and work management tools to fit their needs. Our no-code and low-code platform consists of modular building blocks that are simple enough for anyone to assemble yet powerful enough to build solutions that drive the core functionality of any organization in any vertical. On top of our Work OS, we are building Product Solutions, including software applications and work management tools, for verticals such as marketing, customer relationship management (“CRM”), project management, software development and more. The Product Solutions are built with our building blocks and apps to answer specific needs.”

“Users use boards to hold any information and processes they have, within items and columns. Our schemaless database infrastructure is completely flexible, allowing users to easily define the way they capture and present data. They use views to manipulate and consume that board information in different ways. Users can create forms to capture data from anyone, including non-monday.com users. Integrations pull data from other applications into the board, export data to other systems and synchronize data across applications. Automations eliminate repetitive manual processes, saving time and reducing human error. Users build dashboards that pull data across many boards so stakeholders can get a complete high-level view on anything they may want. Users can access a variety of monday.com “stores” to further customize any kind of building block: for example, the column store allows customers to add new data types to any board, including location, formulas, numbers, text and dates. The views store provides different types of interactive interfaces, including calendar, location and timeline views. The dashboard widget store includes many widgets such as graphs, lists and numbers for use in any dashboard layout customers want to create. Users can organize their boards and dashboards using workspaces.”

Market Opportunity

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%.”

How Monday.com Makes Money - Product Lead Growth Subscription Model

From the S-1: “We generate revenue from the sale of monthly and annual subscriptions to our platform. We strive to provide each potential customer with a plan that suits their needs and supports their business objectives. We offer four different subscription plans: Basic, Standard, Pro and Enterprise. Additionally, we recently started to offer a Free plan with limited features that focuses on small teams and is currently limited to a maximum of two users. The pricing of each of our paid plans is based on the number of users subscribed. When potential customers first engage with our platform, we offer them a free 14-day trial period of our Pro plan so they can experience the full functionality and benefits of our premium tier offering. Once customers realize the value of our platform, they often expand their plans by adding more users. Customers also often extend their contract terms from monthly to annual subscriptions, and a substantial majority of our revenue is derived from annual plans. We bill our customers in advance and recognize revenue ratably over the term of the contract subscription period beginning on the date access to our platform is granted.”

“Our focus on seamless adoption of our platform starts with ensuring that customers can easily and independently get up and running on our Work OS. This is accomplished through a self-serve funnel where virtually any user can sign up and immediately gain value, regardless of their technical skills. nce customers adopt the platform and realize its value, their usage often grows organically, expanding across use cases and departments. As this expansion takes place virally, it is also accelerated through our sales-assisted motions and our partners network. Our customer success teams engage with our customers in an effort to help them grow and achieve their business objectives through our platform. This has created a successful growth cycle: the more value customers gain from our platform, the more new users and use cases are added by such customers, which in turn adds even more value to our customers.”

Benchmark Data

The data shown below depicts how the Monday.com data compares to the operating metrics of current public SaaS businesses.

Last Twelve Months (LTM) Revenue

Monday.com’s LTM revenue was $188M, putting them on the smaller end of public cloud companies today

LTM Revenue Growth

Monday.com grew 95% YoY over the last 12 months, making it one of the fastest growing public cloud companies today

Quarterly YoY Revenue Growth Trends

LTM GAAP Gross Margin

Monday.com has exceptional SaaS gross margins of 86%

LTM GAAP Operating Margin

Monday.com’s LTM GAAP operating margin was (86%), making it one of the lowest of the public cloud universe.

A big driver of the low operating margin is the exceptionally high S&M spend. Over the last 12 months, Monday.com spent 116% of their revenue on S&M (meaning S&M spend was higher than total revenue). This is by far the highest figure of the SaaS universe. The next highest is Snowflake at 81%

Net Revenue Retention

This metric is calculated by taking the annual recurring revenue of a cohort of customers from 1 year ago, and comparing it to the current annual recurring revenue of that same set of customers (even if you experienced churn and that group of customers now only has 9, or anything <10).

Because Monday.com sells to a number of SMB customers (their ACV across all customers is <$2k), their net retention will naturally be lower (107%) given the higher churn nature of the very small SMBs. They also report a net retention metric for customers with >10 employees. This number is 121%, and more of a apples-to-apples comparison to other cloud businesses

Gross Margin Adjusted CAC Payback

(Previous Q S&M) / (Net New ARR x Gross Margin) x 12. This metric demonstrates how long it takes (in months) for a customer to pay back the cost at which it took to acquire them. In the chart below I’m taking the average of the 4 quarters leading up to IPO to normalize the business.

Rule of 40

In the below chart I’m showing LTM revenue growth + LTM FCF margin. Monday.com benchmarks quite well given their high growth. FCF margin is (22%)

This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author and all employers and their affiliated persons assume no liability for this information and no obligation to update the information or analysis contained herein in the future.