Business Breakdowns
· 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.
· Ben Hensman
[00:00:00] S1: Yeah, absolutely. I think software, there's a theme running through here which is that Monday has really changed the way that customers use software from a fixed rigid model to an open and flexible model. And AI takes that to a different level again, where customers can automate and work with software in a new way. They can use natural language, they can have much greater capabilities themselves. And so that puts a really high bar on what you do with software and how powerful it is. And so there are definitely risks ahead for Monday for other software providers, but we also think it's a really significant opportunity. We have to think through things like the evolution of the user interface. We have to think through things like how the business model changes, which today is predominantly tied to seats. But as I said, we think inside this starting point that they have are really exciting opportunities as that flexible platform of primitives that they have. The trust that they have with large and growing customers, particularly non-technical customers, puts them in a really good position to be a carrier for these rapidly evolving technologies. And they can do that while keeping the experience and context really unique to each customer. It's a different experience to how scaled incumbents like Salesforce and Microsoft are making similar capabilities alongside their rigid software products in a copilot-type format. What we're seeing in the early days of Monday releasing product and AI is a clear starting point of customer context that gives them the ability to help drive value in a way that's really accessible. And I'll give you a clear example. They have three core areas of AI product that they're focusing on today. And this is definitely going to evolve, but it's given us clues as to how powerful this can be and it can start to accelerate some of the discoverability within customers and drive expansion over time. And they're pairing this with a consumption-based model, so an ROI-based or per workflow, per action-based business model that will scale with customers generating value. And the three products that they have called AI Blocks, AI power-ups and then the AI digital workforce. And I'll talk to these briefly.
· Ben Hensman
AI Blocks is the first product that they've launched and it is embedding AI in the columns of the Monday boards that all customers use in really, really simple ways. And in a simple example is if you're ingesting tickets on Monday service or candidate responses in a hiring pipeline, you can use out-of-the-box functions like categorizing that text, extracting, summarizing, translating to quickly triage and move items to the next step of the process. With an automated trigger. You can also dive into the prompting layer, but without too many bells and whistles. It's just a really simple interface where you can create custom columns with natural language, test those, adjust those to eliminate further manual steps, and add a layer of leverage before human intervention. And we've got a taste of how well that's going. So by Q3 last year, they'd seen about 3 million total actions using these AI blocks. That jumped to 10 million in Q4 and then up to 14 million by January. We haven't had any disclosure since, but an incredible growth pace, albeit from a low base, but just shows how straightforward it has been for customers and for partners to adopt this functionality. The second product that they have is AI power-ups. These are sitting on top of each of the core products. A good example within work management is a predictive risk management tool. So I mentioned before McDonald's, they have an overarching dashboard that looks at every area of project and campaign work that they're doing. This predictive risk management tool will sit on top of that and allow managers and operating teams to really quickly understand the health and the risk of all the projects in the organization with deep context, not just into the timelines and whether something's actually running on schedule, but much, much more than that. All of the detail within the boards and surfacing the key issues and the key takeaways. And this has been really helpful for companies like Bloomberg that I mentioned before that have been able to really quickly triage projects across the business. It's been useful on the go-to-market front as well that we were talking about before around top-down selling to executives and really understanding the value that comes from multiple teams driving processes and workflows.