Business Breakdowns
· Ben Hensman
[00:00:00] S1: Absolutely. So there are two types of partners. Typically small business partners will be very focused on Monday.com as their primary service offering and they will have a set of sales motions or specific problems that they go out and solve for customers that they've often built themselves on Monday and they take that out to customers. Then there's a resell model as well. And then if you go up the scale, we also see Monday partnering with large consultants and platinum large scale partners that are very focused on not just Monday, but other software providers as well and are going to customers themselves or taking leads from Monday to go into the customer, explore the problem that they have. So it's less about selling a specific product through the partner and it's about exploring that solution, what does the customer need and building a solution around Monday with that. One of the things that we really liked early on about the partner channel and felt that it could really scale materially was an analogy that we've seen in the accounting industry. As the accounting industry moved into the cloud, one of the things that bookkeepers and other folks who use the other side of Xero and QuickBooks benefited enormously from the automation that came from that. So that actually improved their margins significantly because they didn't need to adjust their prices typically. And what we're seeing is a very similar dynamic with partners where they can provide enormous value to their customers, but they're doing so in a way that doesn't require code, doesn't require significant resources from them to build, and it can be reused. And so there's a real incentive for them to build product on platforms like Monday.com and they can see when they come in the initial build, but then they'll often sit down with customers and work out over the next couple of years, what are the things that we want to step through, what do we want to build? And we've seen that pattern consistently emerge across the partner channel.
· Matt Reustle
[00:00:00] S0: Yeah, it's very interesting how these ecosystems or open architecture in some ways where there's different use cases that can extend into new hubs, essentially that these partners become with a bunch of spokes that are customers as well. I always find it interesting, particularly in the software world. It seems to be incredibly popular and a delicate balance to manage all of that. I think you've painted the picture in terms of the outlook from a revenue perspective and some of the key things that are happening right now. If we go back over time, you mentioned net dollar retention being an incredibly important metric within software. There's been some periods where we've seen ups and downs. It seems like it's very much back on the upswing right now. Can you just talk through some of the periods of time that were noticeable or stood out and what was taken away from any volatility that's existed in that metric?
· Ben Hensman
[00:00:00] S1: Yeah, sure. I mentioned in the very early days what the net retention looked like over three, four years. In those early cohorts they were about 100%. If you wind the clock forward to 2019, this time scale we've been using, net dollar retention in 2019 was 100%. But if you look within the disclosure, net dollar retention for accounts with 10 seats or more was 116%. So really healthy behavior from larger customers, even as small as 10 seats compared to the small end or individuals using the product, which naturally are going to have a much higher rate of churn and also a lower rate of expansion. If you fast forward to today, the Overall business net dollar retention is 112% and those larger customers, both 10 seats or more, $50,000 or more and $100,000 or more are sitting around 115%. And that's been consistent for the last two years with $100,000 accounts actually a little bit higher at 116%. But to your question, there was a period of between the start of COVID and the start of 2023 where that net dollar retention ratio went up incredibly quickly. And that reflects both the incredible growth during 2020 of new customers looking for solutions in this space, but also their initial foray into upmarket and larger organizations and just incredible expansion. If you look at 2021, the NDR for $50,000 customers or more reached 150% for the full year, an incredible level. And we saw similar activity across the software space during that period where the best businesses in software were delivering net dollar retention ratios at those sorts of levels. Snowflake, Datadog, others were incredibly high. And in retrospect, that kind of expansion in a short space of time was very much pulling forward and wasn't a sustainable level of expansion. But in Monday's case, while that wasn't a level that they could maintain permanently, it did reflect that initial surge into the upmarket and the incredible success they had as they started to move into larger organizations. Best in class post-Covid. Kind of a more normalized world, even though I guess for the last several years there hasn't been the same level of demand in software markets as we've seen in the past, and particularly during COVID.
· Ben Hensman, Matt Reustle
Achieving 115% net dollar retention while also growing that group of customers by 40% year on year is extraordinary and is not something that we typically see across the software universe. It effectively means that those customers are at 115% the average existing customer who's already been using Monday for a year. They further double that spend roughly every five years. So again, that's a really significant shift in the business. But they're growing still so quickly at a very, very healthy net dollar retention ratio. The other thing to bear in mind as you look at Monday's net dollar retention ratio is that it is a trailing four-quarter weighted average. And so that's one of the reasons why post-Covid that net dollar retention continued for some time at such a high level because it was reflecting many of the gains in 2020 and 2021. [00:00:00] S0: Hearing that in terms of reaching more normalized levels and then marrying it into what you mentioned before in terms of the growth opportunities, is that 115% level an ideal threshold for them to be meeting at least near term? I think over time it might be unreasonable for any business to do that into perpetuity for obvious reasons. But near term, is that a threshold that you think is relevant? And anything else around the ranges of that number and metric that are helpful?
· Ben Hensman
[00:00:00] S1: Yeah, I think this is a really important part of the Monday story. When we look across those revenue drivers that I talked about and going through them again, that's seats or team-based expansion or consumption with their AI pricing which we can come back to later, tiers, products, geographies and price, those five levers together are producing a net dollar retention ratio of 115% today. Our view is that that can actually be a little bit higher in a more favorable economic environment and be sustainable at that higher level. If you look at businesses that have been through this journey, and I grant you these are enterprise examples, but if you look at cohort histories of ServiceNow and Salesforce, where the breadth of those software portfolios and their ability to solve problems, as well as having similar levers of growth enabled incredible cohort growth over a long, long period of time. If you look at Salesforce in 2010, it had around $1.2 billion of revenue, similar margin structure to Monday.com today, and a growing portfolio starting with CRM and starting to move outside CRM. ServiceNow came a little bit later. Those businesses were able to advance net dollar retention at close to 130% blended across a 10-year period for some of those cohorts. So not saying that Monday can exactly replicate that profile, but it's an example of where you get these factors right and you're able to solve many problems for the customer and you have the ability to capture some of that surplus value created for the customer through an ROI-based mechanism or having these different levers of growth, you can sustain net dollar retention at very high levels for a long period of time. Monday's not quite at those incredible levels of Salesforce and ServiceNow yet, but we think it has the potential to get there and it's one of the reasons why we think that it can really grow into this very large addressable market, selling into effectively any business in the world. There aren't very many categories of software or businesses that you can access on the public markets that have that ability to look at any vertical, any size business in the world. And it's an incredible set of growth levers that they can draw on and they do so in a very efficient way.
· Matt Reustle
[00:00:00] S0: Yeah, it's helpful to at least have a precedent for a business that's done it before to prove that it can be done, if nothing else. You mentioned the term of the year or the term of the past two years, which is AI, and rather than wait to get to that, it makes sense to address it now. What type of impact has that had on the business either from a top-line perspective, from a cost perspective, but just an overall perspective? Talk a little bit about how AI is impacting the business.