monday.com

We are discontinuing analyst coverage of Monday.com.

We will discontinue analyst coverage of Monday.com on or about Jan. 20. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are discontinuing analyst coverage of Monday.com.

We will discontinue analyst coverage of Monday.com on or about Jan. 20. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Our fair value estimate of $243 per share implies a fiscal EV to sales ratio of 9 times and an adjusted price/earnings ratio of 61 times. Our discounted cash flow model uses a 9.0% weighted average cost of capital. Revenue growth over our forecast period should be driven by both customer expansion and growing average contract values, or ACV. We forecast total customers to increase at a mid–single-digit annual pace, supported by growing demand for core work management software to organize workflows, enhance collaboration, and improve visibility. We also anticipate incremental customer adds from newer solutions across customer relationship management, product development, and IT service.

The primary growth driver, however, will be ACV expansion, which we forecast to grow at a 12% CAGR. Monday.com has a significant cross-sell opportunity within its existing base, where only 6% of customers currently use more than two products. Expansion into adjacent verticals, continued rollout of AI features, and additional complementary offerings should provide multiple pathways to deepen customer spending.

We model improved profitability primarily from sales and marketing rationalization and leverage over general and administrative costs. Sales and marketing as a percentage of revenue should continue to decline as the company relies less on performance marketing and more on channel partners to penetrate the enterprise segment. Additionally, increased reliance on enterprise clients is expected to result in more efficient scaling of the customer base as Monday.com can generate continued growth from stable seat expansion as opposed to new customers with higher acquisition costs. Our forecast also includes continued operating efficiency as the company reduces general and administrative costs as a percentage of revenue by greater than 8% over the forecast. Near-term margins are likely to face pressure from elevated research and development expenses and gross margin degradation. We expect continued investment in AI, infrastructure, and new product features to keep R&D high for the next several years, though we model this eventually declining to about 20% of revenue. In addition, we forecast gross margins to contract by nearly 5 percentage points as AI solutions account for a greater share of revenue, reflecting higher compute costs. With respect to the argument made about premium pricing of AI features within our bull case, our base case does not assume the company will be able to offset these higher costs. Despite these pressures, we anticipate steady margin progress, with operating margins improving annually and approaching just under 30% in the terminal year of our model.

We assign Monday.com a narrow economic moat supported by switching costs emanating from the centrality of its work management solution across an organization and in conjunction with its growing enterprise presence. Despite the simplicity of the platform and ease-of-use characteristics, we believe Monday’s tight integrations across an organization result in significant touch points making the solution difficult to churn off of. Additionally, Monday’s continued shift upmarket, nearly doubling the number of customers that spend $50,000 annually on their platform, has created a stickier customer base. We anticipate these switching costs will more likely than not result in positive economic profits over the next 10 years. Within the software sector, the most common source of moats are customer switching costs. In our view, several factors support switching costs within a technology solution. A key element relates to the criticality of the offering, as more integral solutions will likely have more touch points and deeper integration within an organization, resulting in stronger switching costs. Operational risk can also contribute to switching costs as changing vendors can result in significant business process and workflow reengineering and potential data loss. Finally, general inertia can also contribute significantly to switching costs as customers may have spent months or years learning or redesigning deeply integrated workflows.

Monday.com benefits from these dynamics as customers use its platform to build, manage, and track projects across teams. Its central role as a hub of collaboration allows clients to also benefit from enhanced automation capabilities to create custom workflows and remove repetitive tasks. For example, a customer could use Monday.com to integrate with its billing software and automate invoices to clients when a job is completed. Simultaneously, a custom dashboard tracking revenue could update, allowing C-suite executives to have increased visibility of business performance. As a result, work management software can extend beyond teams and departments to stakeholders across an entire organization. Further, the ability to reduce silos, automate processes, and provide enterprisewide transparency makes Monday.com increasingly critical as adoption deepens. In assessing the strength of a company’s moat, metrics are important in quantitatively describing the stickiness of a software solution. These would include items such as total customers, customer retention, revenue retention, and revenue attributable to particular end markets. Although Monday does not provide gross retention metrics, the company does provide net revenue retention, or NRR, metrics by client size. NRR describes the percentage of revenue generated by customers currently on the platform divided by the revenue generated by those same customers one year ago including the impact of upsell and cross-sell. Monday’s consolidated NRR has stabilized above 110%, similar with other moat-bearing software companies, and its NRR for customers paying over $100,000 in revenue annually is 117%. Monday’s NRR trends make sense, as larger customers typically have higher retention. Smaller customers have more volatile demand patterns, with going concern and acquisition by larger companies often serving as headwinds to net retention rates. Monday’s move upmarket has helped improve the stickiness of the platform’s revenue base. Presently, over one quarter of the company’s ARR comes from customers paying over $100,000 annually and almost 40% of ARR comes from customers paying over $50,000 annually. Larger customers typically use the software in more places across the organization, creating greater touch points in their customer base, thereby making it increasingly sticky. Additionally, larger customers are more complex, so they are less inclined to invest the time and money required to replace an incumbent solution, as that process requires it to spend time retraining employees, reset software integrations, and opens the firm up to data loss.

The company will be able to achieve sales growth above expectations as solutions across its newer verticals achieve significant market penetration and accelerate cross-sell opportunities.

The benefits of Monday’s artificial intelligence offerings demonstrate enough value such that the company can raise prices to offset the increased compute costs.

Monday.com should continue to benefit from the digitization of consumer packaged goods and industrial companies looking to organize and centralize workflows.

Monday.com faces pressure from several well-capitalized competitors. Should the firm underinvest in the platform, it is at risk of losing clients.

The proliferation of new artificial intelligence technologies could allow savvy enterprises to more easily develop internal work management platforms.

The company faces meaningful execution risk as it seeks to move upmarket, develop AI tools, expand into new verticals, and seek acquisitions.