Monday.com Stock Gains 20% YTD On New Product Growth And Upmarket Progress

The latest quarterly results from Monday.com (MNDY), a provider of a work management software platform, showed that the company’s two big trends—robust new product adoption and steady expansion in the enterprise customer segment—remain in full force. After rising 53.9% in 2023, Monday shares are up 20% YTD.

Last month, Monday reported that Q4 revenue rose 35% to $202.5 million, topping the consensus estimate of $197.9 million. Per-share earnings of 65 cents came in 33 cents above the consensus. Gross margin held steady year over year at 90%. Operating margin of 10% easily beat the outlook of 4% to 5%.

The total paid customer base advanced 21% to 225,231. The number of customers with 10 or more users rose 21% to 53,688. The net retention rate for customers with 10+ users was 115%, in line with expectations. Net retention is expected to begin to rebound later this year.

On the product front, demand remains healthy for Monday’s core work management solutions, where about 70% of all deals have zero competition. The newer Sales CRM product is experiencing rapid growth, with strong interest from new customers. About half of Sales CRM deals are uncontested. As of Q4, there were 13,318 Sales CRM customers, up 21% sequentially. A year ago, the product only had 2,458 customers.

The company’s new Dev product, for managing the software development process, is also seeing rapid uptake across the customer base. In Q4, the total Dev customer count reached 1,448, up 39% sequentially, an acceleration from 33% sequential growth in the previous quarter. The company has been improving its go-to-market motion to successfully drive more multi-product adoption.

Monday’s newest product, Code, was just launched in the December quarter. Within the platform, Code provides a secure serverless environment with built-in compliance standards where developers can host and run apps. With Code, developers are able to avoid the heavy lifting that’s associated with setting up and managing production servers and more easily create apps for the Monday marketplace, according to co-CEO Eran Zinman. Code will be a cross-sell beneficiary.

Monday ended Q4 with 2,295 paid enterprise customers that have annual recurring revenue (ARR) above $50,000, up 56% from the year-ago level. In the December quarter, the company brought on 218 of these large accounts, up from 185 additions in the previous quarter. In 2023, Monday added 821 enterprise accounts, accelerating from 681 additions in the previous year. Enterprise customers now represent 32% of total ARR, up from 27% a year ago.

As Monday moves upmarket, it’s attracting larger and larger organizations. The platform’s largest seat count is now 25,000. The vast majority of the company’s growth is tied to seat expansions at enterprise accounts, where there’s still plenty of runway remaining. About 61% of the Fortune 500 are Monday customers, but the average seat count for this cohort is just 275. Monday will continue to build out its enterprise business via new accounts and more seats.

Monday recently raised its prices for existing customers for the first time. Previously, price increases were only pushed through to new customers. For 2024, the price increase is expected to add revenue of $15 million to $20 million. Given the potential for an uptick in churn due to the price boost, management thought it was wise to be conservative with its 2024 revenue forecast. About 80% of Monday customers are on annual contracts, so this should limit churn.

In 2023, Monday’s revenue rose 41% to $729.7 million and free cash flow margin was 28%. The company’s initial 2024 revenue outlook of $926 million to $932 million (in line with the consensus of $927.5 million) represents growth of 27% to 28%.

Jefferies recently raised its Monday price target to $250 from $230 because it believes the company embedded a lot of extra cushion in the 2024 forecast and thinks it’s beatable. Goldman Sachs earlier this month upgraded the stock to ‘Conviction Buy’ with a target of $270 based on the company’s strong growth potential.

In late February, Monday was initiated at ‘Buy’ with a price target of $280 at BofA. For 2024, the firm is bullish on the collaborative work management software space. As a leader in this market, Monday is positioned to grow revenue at a 30% CAGR through 2026, according to the firm’s forecast. BofA thinks 2024 consensus estimates are beatable and looks for Monday’s market-share gains to continue.

KeyBanc last week started coverage of Monday at ‘Overweight’ with a price target of $275. The firm thinks Monday is best positioned among the collaboration software players to make meaningful progress in the coming years. KeyBanc likes that Monday continues to roll out new products. Also, the company has improved the Monday DB database through continued updates to the architecture, according to the firm. The latest version of the Monday database enables bigger workflows and offers better performance (including improvements to speed up large dashboards).

In 2023, Monday was able to deliver revenue that was 5.6% above the midpoint of its initial guidance range given at the start of the year. If Monday can replicate this outperformance in 2024, its revenue would come in around $981 million (growth of 34%).

One growth wild card to keep an eye on: Monday in the second half of 2024 plans to launch a services-focused product. Many Monday customers already use the platform for some aspects of IT service management (ITSM), according to Zinman.