Monday blues
Yet again, getting smacked
When Monday reported great Q2 results and got smacked, down 25%, I wrote this:
Having gone through the earnings results, call and slide deck, I feel that this quarter has similar issues: great Q3 results were followed with the only quarter in recent memory where Monday didn’t raise Q4 guidance, and guided to a slightly disappointing Q4 revenue guide (a ~$4m miss from estimates, not much on a $300+ basis).
Monday has a lot going for it: growing revenue 22%+, stood by their 2028 guidance, which implies a CAGR of 24%, accelerating customer growth in their enterprise tiers of $50k, $100k and above, rolling out tons of AI products as well as offering a clear monetization strategy.
So what’s killing the stock? The AI narrative + slowing growth.
SaaS is taking a beating this year. Investors are concerned that SaaS companies won’t be able to grow seat count, won’t be able to compete and raise prices or even worse, become completely disinter-mediated. I don’t think that AI will play out like this for Monday (a longer more in depth post on this in the future).
Monday’s slowing growth is seen as the proof point for this AI narrative playing out instead of what I think it actually is: a mixture of going up market, with slower sales cycles and a challenge in marketing funnels due to AI. This is a GTM issue, not a core strategic one that affects the long term health of the business.
Monday’s management reaffirmed their 2027 guidance of $1.8B in revenue, implying an acceleration of growth from Q4’s implied growth rate. Through 2027 this implies a 23-24% CAGR: a very impressive number at this scale. As a whole management is getting some more certainty and visibility on the business due to the move upmarket:
RPO accelerated, 13% of revenue is now from multi-year contracts, up from 5% a few years ago and 70% of revenue is now paid annually instead of monthly.
I have no firm reasons to doubt the future growth and 2027 guidance at the moment:
I’ve been following Monday for years and the company, management and culture has yet to disappoint.
The slow down in growth has a clear, logical reasons - GTM challenges due to the rise of LLMs - and thus I have faith that the company can figure out how to surmount these challenges.
Monday is a leader in its space and has outgrown all its pure competitors: Notion, ClickUp and Asana, has access to more resources to outcompete and still is founder led and hungry to win. Their quick implementation of AI tools shows their ability to maintain moats.
Moving upmarket is the natural move for a company at this stage and it comes with increasing moats and ARR.
What could make me change my mind?
A rapid deceleration of growth (anything sub 20% would concern me greatly for Monday)
Proof points that I’m wrong about the SaaS vs AI narrative (seat count slowing, agents replacing workflow management tools)
Failure to monetize AI flow so that revenue growth plateaus or reaccelerates.
Increase in competitive success - Notion, Clickup etc.
So is the stock a buy? Assuming my base of management hitting their guidance, what’s the financial future for the company and shareholder return looking like?
Some rough napkin math: at $1.8B of revenue in 2028, and 30% FCF margins, Monday will generate $540m in cash flow. For a company valued at $6.4B (if you remove their $1.6b cash hoard), that’s pretty attractive - an ~8% FCF yield. Looking further into the future, I assume a slowing CAGR to ~20% through 2030, implying nearly $3B in revenue, and ~$850m in FCF. This forward growth rate is aggressive and assumes Monday operates at best-in-class levels, matching what Salesforce, HubSpot, and Atlassian achieved at comparable stages.
Industry price targets for Monday have similar targets:
Morningstar: $241, assuming 10 year 17% CAGR
Jefferies: $300 assuming 2027 targets are hit
As for now, I’ll be adding to Monday on this pullback. I have full faith in the management and their team to figure out the GTM issues over time. It’s already a core position of mine and I don’t see anything in this quarter to convince me otherwise. Part of my long term mindset means that I’m willing to suffer near term instability for companies that I think can grow above market rate for many years to come.