Monday.com (MNDY 2.56%) has been a bit of a laggard since its June 2021 initial public offering, with its shares increasing 19% vs. the Nasdaq Composite's gain of 28% during this period.
Meanwhile, the company has been growing by leaps and bounds. Revenue more than doubled from $308 million in 2021 to $730 million in 2023. Investors may have not been impressed by the declining growth rates in recent quarters -- down from as much as triple digits in previous years to 34% in the latest quarter.
Yet, there are good reasons to expect Monday.com to keep growing for many years. Let's see why.
Image source: Getty Images.
Monday.com has a sticky business model
Monday.com offers a low-code/no-code software platform that helps organizations build tailored work-management tools and software applications. Headquartered in Israel, the company was part of website builder Wix in its early days -- used to manage internal workflows -- but was split off fairly early on.
Traditionally, companies have relied on rigid, disconnected, function-specific software to operate their different workflows. As these tools are unrelated to each other, organizations end up with less effective communication and collaboration, inefficient workflows, data silos, etc.
Monday.com's cloud-based software platform aims to free its customers from those constraints. With its low-code/no-code framework, the software provider empowers anyone to build any applications and tools using its modular building blocks consisting of items, columns, automation, integrations, etc. This makes it extremely easy for an organization to design and build software tailored to its needs.
While different teams can build their own apps and tools, they all use the same platform, enabling communication and collaboration across the organization. For instance, a senior manager can easily pull data across different functions to get a holistic view of the company's performance.
Monday.com's platform also acts as a connective layer by integrating with external software and tools, eliminating corporate silos, and facilitating cross-functional workflows. This leads to better organizational productivity, clarity, and a culture of ownership.
By solving its clients' pain points, the tech company positions itself favorably to attract customers, which explains the rapid rise in customer count from 90,000 in 2019 to 225,000 in 2023 -- a compound annual growth rate of 26%.
Revenue grew even faster, from $78 million in 2019 to $730 million in 2023. The company has also reported positive adjusted free cash flow each year since 2021, a remarkable achievement considering most younger high-growth tech companies operate with negative free cash flows.
Monday.com has a bright future
While Monday.com has grown rapidly over the last few years, there are good reasons to expect it to sustain its high growth rate for a while.
The company operates in a vast and growing market -- based on data from IDC, its total addressable market was $101 billion in 2023 and is expected to reach $150 billion in 2026. With revenue of $730 million in 2023, it hasn't touched 1% of this opportunity.
The tech company is pursuing multiple strategies concurrently in its efforts to gain a larger market share. Firstly, it can attract new clients via its freemium service, corporate sales, and partnerships. It is increasingly targeting larger accounts by focusing more on enterprise customers, in contrast to its historical focus on small and medium-sized businesses.
It's also working to grow its revenue from existing customer accounts by increasing the number of seat licenses those clients pay for and cross-selling additional products to them. For instance, a customer that started by paying for less than five of its employees to use Monday.com's traditional work management product can gradually add more users and subscribe to more products in the sales CRM, dev, and service spheres.
Beyond that, the company can expand further into new markets globally. The North American and European markets account for 80% of revenue right now. The share coming from the rest of the world could change as it expands in its less-tapped markets.
In short, Monday.com has ample growth opportunities and multiple ways to take advantage of them.
What it means for investors?
Monday.com is a fast-growing and profitable software company that is well- positioned to sustain its growth trajectory for a while.
By helping its customers improve their workflows and productivity, it has made itself indispensable to them. Beyond that, the company makes it extremely easy for potential new customers to try it out -- the cost of doing so is zero, as they can sign up for free accounts to test Monday.com's products before subscribing to the paid service. And the potential benefits to those clients could be massive.
Given all that, investors will want to keep Monday.com on their radar.
