Monday is a buy

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Monday's share price is down 40% since Q2 earnings

Despite adding record number of net new customers paying over $100,000 annually

There's been some commentary that the decline in Monday's share price is proof that AI is going to eat legacy SaaS's lunch

The idea being that SaaS companies now no longer have a moat because you can vibe code alternatives in a weekend. 

If you dig into the transcript of the earnings call that wasn't the driver of the sell off.

It came from two things.

The first -- they reported some impact on SMB customer acquisition due to the change in the way that google displays search results.

Their traffic was impacted because of the AI summary box at the top of the search results.

Now I think Monday's leadership team did a good job outlining why this change would be fairly easy to mitigate.

They can reallocate marketing budgets to other channels, and the impact of the changes on high intent prospects is negligible. 

Think about it, if you're trying to figure out what project management system or SMB CRM solution you should use, you're probably going to end up on a Monday.com landing page at some point. 

If you’re a low intent browser, maybe the AI answer box suffices.

The second driver behind the sell off was related to a slightly lower than normal rise to revenue guidance for the 2nd half of the year. 

Monday has a track record of revising up revenue expectations for the full year in Q2.

They did that again this year but the % increase wasn't as high as analysts expected. 

That naturally causes the inputs on their valuation models to change.

Inciting a sell off from a portion of the investor base. 

Now the challenge that Monday and all of incumbent SaaS solutions have is that they are competing against AI native companies for share of AUM from public investors. 

The way to think about this is that in the eyes of a public equity investor, they don’t only look at Monday in competition to ClickUp, Asana and Atlassian - Monday competes against every public equity in the US. 

If I’m a fund manager I can invest in Monday or any other publicly traded stock. 

And when that’s the case – Monday’s performance relative to its direct competition is less important to me than the businesses future potential in comparison to Google, Palantir, Nvidia Meta and Microsoft. 

And so any softness in future outlook can be exacerbated by the fact that there are alternative investment options with really strong tail winds right now. 

Now that being said, in my view Monday has been significantly over-sold. 

It’s got a market cap of $9.23B

Or about 7.6X Q2 ARR

In my view that’s low for a company that’s at ARR of $1.20B growing at 26%

With 25%+ FCF margins

And CAC Payback of 28 months. 

For comparison, the companies around this mark have much worse metrics:

Lets take a look at some of them:

Procore $9.93B Market Cap

Or about 7.6X Q2 ARR

$1.30B in ARR growing 14%

3% FCF last quarter and 40 Month CAC Payback.

Gitlab $7.49B Market Cap

At $920M in ARR

Or about 8.1X ARR

Growing 27%

30 month CAC payback

MongoDB $18.55B Market Cap

$2.21B in ARR

8.4X ARR

Growing 16%

20% FCF margins

36 Month CAC Payback

Hubspot $23.5B Market Cap

$2.98B in ARR 

Growing at 19%

7.9X ARR Multiple

CAC Payback of 25 months

FCF Margin of 15%

Lets look at this metric by metric to see how the numbers stack up.

First ARR Growth Rates.

Only Gitlab is growing faster. At 27% compared to Mondays 26% Hubspot, MongoDB and Procore all growing significantly slower.

Next CAC Payback:

Only Hubspot is slightly better on this metric at 25 months compared to Monday’s 26.

MongoDB, Procore and Gitlab are are significantly less efficient from a GTM perspective.

Similar Picture on FCF margins

Monday leads the pack here at 25% Gitlab is closest at 22% and MongoDB and Hubspot trail with Procore sitting at just 3%.

So Monday is a clear leader in most of these categories but has the lowest ARR multiple of the group. 

Tied with Procore who is dead last in every category. 

So to put this in simple terms the sell off on Monday has been far too aggressive in the last 6 months. 

Share price is down about 45% over that time. 

So bullish on Monday at these prices. 

One final fun fact to leave with you here. At the time I record this Figma with a market cap of $36B is worth more in the public markets than Monday, Hubspot and Zoominfo combined. 

Which is just wild. 

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