There could be an opportunity for investors to profit from buying stock in Monday.com, a provider of project management and other software.
Project management software — part of a $100 billion market opportunity growing 14% annually, according to Monday.com’s Q3 2024 shareholder letter — helps companies keep their projects on track.
Unfortunately for investors, despite growing faster than three peer companies, Monday.com’s stock has fallen 28% since reporting strong third quarter 2024 earnings, according to Yahoo! Finance.
After my recent interviews with an early Monday.com investor — Managing Partner at Entrée Capital Avi Eyal — and the company’s cofounder and CEO, Roy Mann, here are three reasons Monday.com’s stock could rise:
- Solid third quarter performance and prospects.
- Significant total addressable market opportunity.
- Rapid customer growth from new customer relationship management offering.
“Monday.com is still a young company in a huge growth market at the start of its journey,” Eyal told me in a December 19 interview. “There is so much opportunity. We have a strong customer base with an initial product that can be leveraged.”
Monday.com Third-Quarter Performance And Prospects
Monday.com — founded in 2014 and named after the first day of the work week — surpassed expectations and boosted guidance in its third quarter.
The company beat Q3 expectations on the top and bottom lines. Its third quarter revenue exceeded analysts’ estimates by 1.9% — rising about 33% to $251 million, noted Yahoo! Finance, while Monday.com’s earnings per share of 22 cents also surpassed expectations, noted SeekingAlpha.
Monday.com also raised its revenue guidance for the fiscal year above consensus. More specifically, the company expects a 32% increase in revenue of $965 million for 2024 — about $7 million more than previous guidance, according to Globes.
The software provider also raised its forecast for free cash flow. Specifically, Monday.com expects free cash flow of $287.5 million for 2024 — $5 million more than the previous guidance, noted Globes.
Finally, the company beat of analysts’ earnings before taxes, interest, depreciation, and amortization estimates and reported “a significant improvement in its net revenue retention rate,” reported Yahoo! Finance.
Monday.com sees a bright future. “We are very pleased with our results in Q3, with solid revenue growth and profitability, as well as improving retention trends as we continue to expand to larger customers,” said Monday.com CFO Eliran Glazer.
Indeed Monday.com’s retention rate consistently tops 100% — meaning the company keeps selling more to current customers. The company achieves this growth by landing and expanding — introducing its software to a single department which uses the platform and shares its enthusiasm with other departments — enabling organic expansion, noted CTECH.
Monday.com’s Significant Total Addressable Market
Monday.com sees significant growth opportunities. The company estimates its TAM is growing at 14% annually to more than $100 billion across four markets: the company’s initial market “work management” and relatively new ones such as “CRM, service management and software development,” noted Monday.com’s Q3 shareholder letter.
The company has grown considerably in the last decade based on a simple premise: write software that makes it fun for people to work together. Mann — who co-founded the company with Eran Zinman — has a passion for building software that is easy for people to use. “When we started, myself and Eran needed to code to get the tools we needed to work,” Mann told me in a December 19 interview.
“We wanted to change how people manage work together — making it simple, easy and fun. Our first customer was Wix. It took us about a year and a half to fine tune our software to get product-market fit so we had a platform that was really easy to use.”
Entrée Capital was impressed with the platform and decided to invest early in the company. “Roy and Eran solved the risk management problems I tried to solve in a company I sold. They built a flexible architecture for risk management that would work in any industry,” Eyal said.
Monday.com’s architecture has attracted 250,000 customers in 200 different industries across the globe. “We have 80,000 users working together on one platform,” Mann told me.
“People use our software in airplane manufacturing, clinical trials research, church events, media production — including Lionsgate, Channel 4, Universal Group and Bauer Media Group, and different business functions such as marketing, research and development and finance,” he added.
Rapid Customer Growth From Monday.com’s New CRM Product
Monday.com reached a significant milestone in the third quarter — $1 billion in annual recurring revenue. The company views this as a good starting point on which it will build by expanding its product line and broadening its geographic scope. Moreover, the company sees itself as staying ahead of changes in the way people work, noted the Q3 shareholder letter.
A recent example of capitalizing on innovation is Monday.com’s CRM product which has brought in 25,000 customers in the two years since it was launched. “We occupy a sweet spot in CRM,” Mann said.
“Salesforce’s product is rigid, can’t do a lot of different things, and is expensive because it requires companies to hire an implementation partner. There are also hundreds of smaller competitors. We fill the gap by offering the best of both worlds — a simple, easy-to-use, flexible platform at a lower price that is great for sales people.”
Monday.com’s culture could be a sustainable source of advantage over rivals. “We hire good people who are humble, no-nonsense, and have a passion for the business. We create a family feeling of people who want to make a difference and serve our communities,” Mann explained.
Is Monday.com Stock A Bargain?
Does all this make Monday.com stock a buy? The bull case springs from the disconnect between the company’s stock price performance since announcing Q3 results and the company’s financial performance.
Three project management software stocks — Atlassian, Smartsheet, and Asana — did better after their Q3 reports than did Monday.com’s. As a group, the four companies beat analysts’ consensus revenue estimates by 1.9% while next quarter’s revenue guidance was in line — sending up their stock prices by “13.5% on average since the latest earnings results,” noted Yahoo! Finance.
Despite posting “the fastest revenue growth and highest full-year guidance raise of the whole group,” Yahoo! Finance reported, Monday.com’s stock has fallen 28% since the company released its Q3 report.
Longer-term, Monday.com expects revenues to increase 10-fold. “Competitors have reached $10 billion, and we believe we have everything needed to get there,” Zinman told CTECH.
Based on 21 Wall Street analysts offering 12-month price targets, Monday.com stock would need to rise about 39% to reach the average price target of $324 a share, notes TipRanks.
While this sounds bullish, short interest in the Monday.com rose 1.2% in the last month to 7.21%, according to the Wall Street Journal.
If those betting against the company’s stock are wrong, the TipRanks price target may be too low.
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