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Monday.com IPO | S-1 Breakdown

By 

Alex Clayton

May 21, 2021

Company Overview

Monday.com, a leading SaaS project management company, filed for a $100M (placeholder figure) IPO. Goldman Sachs is leading the IPO and the company plans to trade on the Nasdaq under the symbol “MNDY.” Unlike most S-1's, Monday's starts with a letter from the founders that describes their mission: "to give our customers the power to create their own work software." The company also calls this new category of software Work OS, which "democratizes the power of software so organizations can easily build software applications and work management tools that fit their needs." According to the S-1, the company has raised $234M, and most recently a $150M round led by Sapphire at a $1.9B valuation in June of 2019 (more on their investors below). The company will hope for a more controlled pricing vs. Squarespace, another SaaS IPO that went public this week which is roughly at their reference price of $50/share and 35% below their last funding round at $10B in March (as of 20-May-2021). Squarespace went public through a direct listing and Monday will go out through a traditional IPO.

Monday's product is a highly configurable (and collaborative) set of software building blocks where users can build their own workflows and is the first IPO from the next generation of low-code tools from companies like Airtable, ClickUp, and Notion. Monday offers a pliable, no-code way for users (both technical and non-technical) to create their own software applications and workflows through categories of building blocks. The company mentions that across their 127,974 customers, there are thousands of use-cases, mostly in 3 main categories 1) business-critical software applications, 2) work management tools and 3) connective layers to form a unified workplace and integrate applications across an organization. More practically speaking, it includes things such as project management, task management, inventory tracking, issue tracking, building your own CRM, etc. More on the product later in this post.

Monday was founded in 2012 and launched their product in 2014. The company was formerly called DaPulse and changed their name to Monday.com in 2018. Their numbers are impressive; the company is at $236M of ARRR (annualized revenue run rate), growing 85% YoY with 121% net dollar retention (for customers with more than 10 users). One of the more impressive stats was that they have *only* burned $121M to get to almost $240M of revenue run-rate, which is unusual for a SaaS company. The company attributes this to their self-serve adoption and ensuring the product can enable users to get up and running immediately and instantly gain value, thus also creating organic expansion. Monday is headquartered in Tel Aviv, Israel, has offices in New York City and Sydney and as of March 31st, 2021, had 799 employees. Below is a timeline output from the S-1.

Source: Company S-1

Product

Monday’s platform, which they call Work OS, enables organizations to build software applications and work management tools to fit their needs. The company’s no-code and low-code framework 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 Work OS, Monday is building Product Solutions using its building blocks and apps to answer specific needs for verticals such as marketing, CRM, project management, software development and more. An overview of the primary components of the Work OS platform are included below:

  • Boards: Capture data and manage processes. Monday’s boards are at the core of its platform, as they are the starting point on which all functionality on the platform is built. Each board has the infrastructure of a schemaless database with an easy-to-use interface, which users can easily customize, populate and build applications on top of. Boards consist of items, which are individual rows in the board, and columns, which represent a single type of data. Users can start from a blank slate or with one of ~130 templates.
  • Views: Allow a board’s contents to be visualized and interacted with in a way that suits a user’s needs. Users can update their data within any view they choose, with these changes reflected on the board in real-time. With the company’s growing views store, users can visualize and manipulate data on the board to fit any need, vertical or industry. Any developer or user can create their own custom views as well.
  • Forms: Capture additional data through web-based forms that are easily populated by their recipients, including non-monday.com users. Each response creates a new item within the board, with all of the data supplied by the recipient automatically populated in the relevant columns. 
  • Automations: Once a board is populated with items and columns, the platform can be used to easily build automations. Automations are triggered based on actions that occur or thresholds that are reached and can include notifications, item creation, assignment of ownership and due date, and moving an item to another board.
  • Integrations: Allow users to connect with external tools to share data and automate actions across tools. Currently, the company’s integration center includes 40 integrations to other tools such as Gmail, Outlook, Jira, Salesforce, Google Drive, Dropbox, Stripe, Slack and Zendesk. Integrations can also be built.
  • Dashboards: Users can create dashboards with summaries and reports to track progress across all of their Monday workstreams.
  • Workspaces: Users can organize and centralize boards and dashboards using workspaces, which are defined by any category the user chooses. In large organizations, workspaces can represent a department or a team working on a project, for example.

Monday has recently expanded the scope of building blocks by extending its platform to external developers through a low-code framework and a new apps marketplace, allowing customers, partners and external developers to easily create their own building blocks and apps, either for private or public use. Developers and app builders can also distribute their building blocks and solutions through Monday’s apps marketplace.

In addition, as mobile capabilities have become a key requirement for users as more work is done outside the office, Monday has invested in its mobile development to ensure the high performance of the platform on smartphones and tablets. The company’s native mobile application is built for both iOS and Android. Below is a product overview graphic from the S-1.

Source: Company S-1

Summary Metrics and GTM (Go-to-Market)

Monday is an impressive company and a few high-level metrics before diving into the GTM of the company: 

  • $236M in implied ARR (quarterly revenue * 4), up 85% year-over-year. All of their revenue is subscription-based.
  • LTM revenue of $188M, LTM non-GAAP gross margin of 88% and a (49)% LTM non-GAAP operating margin. LTM Free cash flow margin of (19)%.
  • Net dollar retention for the whole business was 107% in the latest period and for customers with 10+ users, was 121%.
  • Implied average ACV (implied ARR / total customers) was $1,843 last quarter.
  • Their implied months to pay back, which is the inverse of a CAC ratio (implied net new ARR multiplied by gross margin/sales and marketing spend of the prior quarter), was at a 21-month median over the past 7 quarters.

Monday started off with a self-serve funnel and customer experience function and in 2018 broadened it to include investing further in their self-serve funnel, direct sales (focus on SMB, mid-market and enterprise), partners (112 global channel partners) and their apps marketplace. The company has doubled the sales and success teams from 154 at the end of 2019 to 365 as of Q1'21. Of the company's 799 full-time-employees, 46% are in sales and success. Monday offers 4 subscription plans (image below and pricing plans here) and recently started offering a free plan with limited features that is limited to a max of 2 user teams. Pricing of paid plans is based on the number of users and the company offers a free 14-day free trial of their Pro plan (premium offering) so users can experience the full functionality of the product. Customers can purchase monthly or annual plans, and the company mentions that a "substantial majority" is from annual plans. Below is a screenshot from the company's website on pricing.

Source: Company website

The goal of their self-serve engine is to enable a user to sign up immediately and gain business value, regardless of technical skills. The company gets users to their website, they use the product with the hope that it expands virally inside an organization. Enterprise customers, which the company defines as customers with more than $50K in ARR, grew 247% from 2019 to 2020 and the ARR from those customers grew 297% from 2019 to 2020, outpacing the company's total ARR growth. As of Q1'21, 16,925 developers had visited the “Developers” section of the platform in order to build an app, but it's unclear how many have built one.

The company believes that going up market into larger customers will be central to their future success and some of their largest enterprise customers started with a small team of 5 users. Interestingly, they mention COVID-19 had no positive or negative impact on their business. Given their self-serve and organic approach to getting users to the top of the funnel, the company calls out the algorithms from search engines like Google and Facebook as a risk factor, which you would usually see in a consumer-focused business.

Below are more stats on the business and industry from the S-1:

  • Monday has 127,974 customers across 200+ industries in 190+ countries and ranges from teams of two users to organizations of 7,000. The product is available in 13 languages. Monday has customers in ~38% of the Fortune 500 companies.
  • 70% of Monday customers work in traditionally non-tech industries, such as real estate, banking, journalism and construction.
  • No single customer accounted for more than 1% of revenue in the years ended December 31, 2019 and 2020 and for the three months ended March 31, 2021.
  • As of December 31, 2019 and 2020 and March 31, 2021, customers with more than 10 users accounted for 53%, 63% and 65% of ARR, respectively. The net dollar retention of these customers for the same periods was 116%, 119% and 121%, respectively.
  • Net dollar retention for all customers was 100%, 105% and 107% for the three months ended December 31, 2019 and 2020 and March 31, 2021, respectively.
  • As of April 30, 2021, 96% of enterprise customers use Monday for at least two Product Solutions and 63% of enterprise customers use Monday for at least 3 Product Solutions.
  • As of March 31, 2021, 84% of Monday enterprise customers used integrations to connect their platform to other tools and systems used within their organization.
  • For the twelve months ended March 31, 2021, 800M+ manual actions were automated on Monday's platform. As of March 31, 2021, 99% of their enterprise customers used automations on the platform and, as of April 30, 2021, 95% of enterprise customers used more than 50 automations as part of their workflows.
  • Executive officers, directors, current 5% or greater shareholders own 90.2% of the total shares outstanding as of March 31, 2021.
  • 71% of revenue was denominated in U.S. dollars in 2020.
  • Monday calls out the strength of their culture and cites their Glassdoor reviews, which were 4.7 out of 5.0, a 97% chief executive officer approval rating, a 94% “Recommend to a Friend” rating, and a 96% “Positive Business Outlook Rating.”
  • The company has built an internal business intelligence tool called BigBrain that collects and processes over 200M events per weekday and sends employees daily SMS messages with high-level KPIs and dashboards. 

Industry stats

  • According to IDC, 65% of global gross domestic product is expected to be digitized by 2022, driving over $6.8T in global spending on digital transformation from 2020 to 2023.
  • According to Oliver Wyman, as of April 2018, nearly 90% of chief innovation officers and related roles said agility was highly important to the future success of their companies and 95% said they needed to become more agile in the future. However, only 26% rated their company’s agility as high or greater.
  • According to Gallup, 33% of U.S. workers worked exclusively from home as of September 2020, while another 25% of U.S. workers will pursue employment which allows them to work partially from home in the future.

Market Opportunity

Given the broad applicability of use-cases for Monday's product, the market size is theoretically massive, and according to estimates from IDC, Monday believes their market opportunity was $56.1B in 2020 and will grow to $87.6B in 2024, representing a 4-year compounded annual growth rate (CAGR) of 12%. The company gets to this figure by summing up the most common use-cases on their platform: project and portfolio management ($4.0B), collaborative applications ($21.7B), sales force productivity and management ($11.5B), software change, configuration and process management ($4.6B) and marketing campaign management ($14.3B).

Competition

Monday has a long list of competitors for their Work OS. The company calls out competitors in two areas 1) "companies that primarily offer project and work management solutions, including application of processes, methods, skills and knowledge to achieve specific objectives". This includes Asana, Wrike, Smartsheet, Notion, Citrix Systems, Zendesk and Freshworks and 2) "companies that offer Product Solutions across other use cases, such as CRM, software development tools and marketing campaign management". This includes companies such as SugarCRM, Pipedrive, Zoho, Atlassian (JIRA), Procore, Workday, BambooHR, Hootsuite, and Adobe Experience Cloud. Even though Monday calls out competition, the company mentions that as of Q1'21 ~70% of the work done on the platform was a replacement for spreadsheets, emails and meetings, while the other 30% they competed with other product solutions, so most of their market today is greenfield.

Investors and Ownership

Monday has raised $234M in equity financing according to the S-1. Investors include Insight, Stripes, Sapphire, Entree Capital, Vintage, Hamilton Lane, and others. 5%+ pre-offering institutional investor shareholders include Insight Partners (42.7%), Entree Capital (12.4%), and Stripes (7.8%). Roy Mann, Co-CEO & co-founder, holds a 15.3% stake. The last round was a $150M Series E in June 2019 led by Sapphire Ventures at a $1.9B valuation ($41.27 per share). 

An output of the cap table ownership and per series prices is below:

Source: Company S-1

Price per Share Disclosure

Source: Company S-1

Financials and Other Metrics Outputs

Monday is at $236M of implied ARR (quarterly revenue * 4) while growing 85% year-over-year with non-GAAP gross margins at almost 90% in the most recent quarter. Non-GAAP operating margins are negative, (40)% in the most recent quarter. While the company has high gross margins, they do spend a significant amount on sales and marketing -- the company spent $63M (107% of revenue) in the most recent quarter. Given their bottoms-up approach, the company needs to spend marketing dollars to drive website traffic, much like a consumer-focused company. Even with heavy marketing spend, the growth of the company has been extremely efficient to date and unlike most SaaS companies, Monday mentions they have spent $121M of cash to finance the growth of the business thus far and has generated $2+ of ARR for every $1 of capital used. Outputs of other metrics are below:

Historical P&L & Metrics ($000's)

Source: Company S-1

Quarterly Revenue ($M)

Source: Company S-1

Implied Ending ARR ($M)

Monday added $35.3M of implied net new ARR over the past quarter and $108.2M over the past year. Implied ARR is quarterly revenue * 4.

Source: Company S-1

Quarterly Non-GAAP Gross Margin and Operating Expenses as a % of Revenue

Source: Company S-1

GAAP and Non-GAAP Operating Margins

Source: Company S-1

Implied Average ACV and Customer Segment Analysis

Source: Company S-1

Customers Over $50K in ARR / Enterprise Customers

The chart below is a critical part of the Monday story. While the average customer pays them <$2K per year, customers paying $50K+ in ACV (annual contract value) are growing 250% year-over-year. The company doesn't disclose the revenue from these customers, but if you assume they all paid $50K it would represent <10% of total revenue as of the most recent quarter, which is a conservative number, and it's growing faster than the whole business.  

Source: Company S-1

Net Dollar Retention and Cohorts

The company releases a cohort graphic for customers with 10+ users and the growth in revenue from those customers over time. Each cohort represents customers with over 10 users that made a purchase in a given year. For example, the year 2018 cohort represents all customers with over 10 users that made their initial purchase during the year ended December 31, 2018. Each customer is counted within a cohort once they surpass 10 users. As you can see from the chart below, newer cohorts are expanding at a much faster rate and are larger in ARR, which is a good sign for the company. For example, the new ARR generated from the 2018, 2019 and 2020 cohorts was higher than the new ARR generated by the 2016 cohort by 6.7x, 16.0x and 27.1x respectively. Moreover, the rate of expansion from the 2017 and 2016 cohorts accelerated in recent years due to Monday's sales and customer success teams helping customers gain more value out of the platform. The 2016 cohorts grew 21% and 29% for the years ending 2019 and 2020, respectively, while the 2017 cohorts grew 21% and 33% for the periods ending 2019 and 2020, respectively. Below are the company's reported net dollar retention figures and cohort graphic.

Source: Company S-1
Source: Company S-1

Sales Efficiency and Payback Periods

Monday doesn’t release customer counts by quarter, but the below output plots their implied months to payback using the inverse of a CAC ratio (net new ARR multiplied by non-GAAP gross margin/non-GAAP sales and marketing spend of the prior quarter). The magic number is defined as net new ARR/non-GAAP sales and marketing spend of the prior quarter. The median months-to-pay-back over the disclosure period is 21 months.

Source: Company S-1

U.S. vs. International Revenue Mix Percentage

Source: Company S-1

Cash Flows ($M)

Source: Company S-1

Quarterly P&L (000's)

Source: Company S-1

Valuation ($M)

Monday will trade like other high-growth SaaS companies: on a multiple of forward revenue and there are direct competitors like Asana and Smartsheet that are already public. The output below uses NTM (next-twelve-months) revenue based on an illustrative range of growth rates and comparable EV (enterprise value) / NTM revenue multiples from other public, high-growth SaaS businesses. It also includes an implied ARR multiple range. As mentioned in other posts, companies do not release projections or guidance in S-1's. It’s likely Monday trades at a premium to Asana and Smartsheet given their higher revenue growth rate.

Source: Multiple ranges from https://www.meritechcapital.com/public-comparables/enterprise. Enterprise value ranges are illustrative. Asana and Smartsheet multiples as of 20-May-2021.

Final Thoughts

Monday is an impressive company reimagining the way in which enterprises use software, and represents the future of software usage for many companies. SaaS applications have historically been pre-packaged applications with specific and rigid workflows, but in many cases companies would prefer workflows and applications to be specific to them, which Monday enables. The notion of offering a pliable and highly configurable set of modular software building blocks for users to create their own workflows and applications themselves makes a ton of sense. Monday is certainly on the right side of history but is in a highly competitive market; the company even names almost 20 competitors in their S-1. Similar to other start-ups such as Airtable and Notion, the company utilizes a bottoms-up / self-serve GTM (go-to-market) approach that has enabled them to grow rapidly and efficiently expand within their customer base. Moreover, the larger a customer gets and the more customized the workflows they build within Monday, the more sticky the Monday product becomes. There is a lot to like about their growth and efficiency but they will get questions about continuing their high growth rate of enterprise customers, competition, and reliance on heavy marketing spend to grow. Given the recent choppiness in public SaaS multiples -- some are down 50% from 2021 highs -- Monday is likely to be priced more conservatively creating a lot of demand for the asset. Expect them to have a strong first-day pop.

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Special thanks to Chris Gaertner for the help on this post.

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