Business Breakdowns
· Ben Hensman
[00:00:00] S1: They haven't. So today the business has 1.4 billion on the balance sheet, no debt and that gives them a lot of optionality and to date hasn't burned a hole in their pocket in terms of their uses of cash. They've been very disciplined. It's obviously generating a lot of interest revenue right now, which is helpful. But in terms of what they can do with that cash, they really highlight three areas, none of which they've executed on in terms of uses of that cash. Their first priority of course is always investing in organic growth and that's continued to be the focus, but they haven't required additional cash for that given they're generating so much of it. The other two options are inorganic M&A and share repurchases. And on the M&A front, they haven't acquired a business to date, but they have been looking at businesses in areas that really complement the workflows and allow them to build depth in specific areas of product. And so I'll give a really specific example. We've talked about marketing ops quite a bit. This has been a really fruitful area for them to start in businesses. It's one of the verticals that they created and focused on in the early years when they were a really broad and horizontal platform and needed to help customers understand what the value prop was. Marketing ops has been an area, and so there are a number of small businesses and startups around the world that have gone in and filled different parts of specific workflows. So really niche operations. That's an example of where you might do a tuck-in acquisition to bring that capability into that specific part of the platform for marketing ops customers. They haven't chosen to do that yet, but that's where they'll focus. The other area is acqui-hires where there are businesses with really impressive talent, fantastic ideas and capabilities that they want to bring into the business. Share repurchases are the other option and that's something that they can definitely take advantage of at points when the business is not valued particularly highly.
· Matt Reustle, Ben Hensman
[00:00:00] S0: Have they ever done share repurchases in the past? [00:00:00] S1: No. [00:00:00] S0: Yeah. Pay the employees in the stock, wait for it to come back to buy back. There's some interesting options, particularly when you mentioned the dilution versus the percentage of revenue. It's an interesting delta between the two. And then I guess when I think about the business, I am sure they have high aspirations and a long runway ahead. Have they ever been targeted in M&A talks? Is that ever something that gets floated around?
· Ben Hensman
[00:00:00] S1: They have been targeted in their early years in particular. I mean, they're a $14.5 billion company now, so it's a much bigger undertaking for a large company. But we have seen that happen in this space before. Salesforce bought Slack for 27 billion to plug a hole on their product portfolio. I think what stands out about Roy and Eran from the very early days, this is something that we often talk to early-stage companies about when they're in the early years and are doing incredibly well and growing fast: what happens when an offer comes? And I think what we've seen with them is their hunger and their ambition to build something really significant in the next generation of software and willing to take material risks to get there. They've talked about this before, publicly, in interviews, that they really feel, and certainly felt back in 2016 and 2017 and '18 that they were building the next Salesforce or Microsoft. And that's a big statement. But they genuinely felt that Monday's underlying vision and that platform capability really had that potential. And we do as well. And they've said very clearly they don't see any reason to sell the company and they're having the time of their lives and that's been a very consistent feature for them. If you look at some of the things that indicate the level of ambition, one really good example is when they changed their name from daPulse to Monday.com. There are always going to be lots of views on whether name changes are a good idea. They had to pay a lot for the domain name, but it's been an incredible shift for the business to do that. It's really opened up the way that they go-to-market and the way they talk about the brand. At the time they had 15,000 paying customers. They were material scale and that was a really big bet. And focusing on the upside and being bold and going after that. I think it's a really good show of force from them on what they're trying to achieve. So I think it's pretty unlikely that we'll ever see them sell.
· Matt Reustle
[00:00:00] S0: Yeah, I have to mention Wiz was in the same category of no reason to sell, and the price just got higher and higher and I think that turned out well. But I think the ambition is clear. I think one of the things that I usually bring up earlier and when we were discussing the episode beforehand, you mentioned TAM is a difficult thing to measure here, and I think you've laid out exactly why. But when you think about the market opportunity, they're, let's say, billion dollars in revenue right now run rate. How big do you even categorize this market as? It seems incredibly huge. But how do you just think about that market opportunity and if it's them taking advantage of a growing wave, if it's them capturing more market share, just some of those more competitive dynamics.
· Ben Hensman
[00:00:00] S1: Yeah, absolutely. So I think the starting point for Monday is its original home project management, which today is defined by IDC as about a $45 billion addressable market, but growing really healthily. What we've seen over the years is Monday has expanded into more and more use cases, some defined use cases like CRM and service management and product development, but also a whole lot of other use cases that are really just labor and internal processes and workflows. So the defined size of their market IDC has that growing to about 150 billion by 2026. And these are very large numbers. That's growing about 14%, 14%, 15%. And so at a pace of two times that or a little bit more, Monday's clearly taking meaningful share within that defined market. But we don't think of that set of definitions across those core categories of functional software as the bounds of what they can achieve. They can sell to effectively or be bought by any business in the world, and so perform and help drive most processes for those businesses. And so long as they're core workflows and they retain those customers and expand them meaningfully over time, this is a business that has no upper limit on its scale. Its ability to get there will be tied to the value it creates for customers and then how it's able to capture a share of that value, a fair share of that value, as it unlocks productivity and capability within those customers. In terms of the competitive dynamics, I think at first glance this is a very competitive market and we shouldn't be surprised because it's so large, it's always going to have a significant number of competitors vying for that large, large opportunity set. And you also see a lot of different approaches. There's room for a number of winners. You also see a lot of different opinions. So people like different tools, they like using them for different reasons. And I think of competition really in three main buckets. One is that original category of project management companies like Asana, Trello, ClickUp and others. There are many in that space. I think the second group of competitors are functional software players. So Salesforce, ServiceNow, at the enterprise end, HubSpot, Atlassian, Microsoft, these are all businesses that are in those defined software categories.
· Ben Hensman
And then you have a third category with more flexible players that have a similar philosophy but very different form factors to Monday.com, companies like Notion or Airtable. And those companies are solving some of the same problems. There's definitely overlap, but we think the power of what Monday.com has built and the flexibility of it cascades across those three different buckets and beyond and makes them a very different competitor. It's probably one of the most impressive things, if you look across their whole history, is that the entire time that we've known them since 2015 through to today, this has looked like a red ocean. But they have consistently been able to innovate and have really high product velocity and have that cut through to customers, which is something that many others, a couple of those names have obviously done incredibly well, particularly at the enterprise end and companies like HubSpot. But it hasn't been as easy for others to continually cut through, particularly after Covid and a lot of the capital came out of the sector and the ability to grow came out of the sector. We saw that be an incredibly strong period for Monday where they were able to actually lean in and invest more in performance marketing and take market share really significantly during that period because of the quality of the product, but also the quality of their execution against these competitors and the capability that they built in house.