Israeli work operating system company monday.com (Nasdaq: MNDY) has seen its share price jump nearly 30% over the past three days after reporting strong fourth quarter results. The company's share price rose 3.67% yesterday to $170, giving a market cap of $7.432 billion.
The recent rise took monday.com nearly 10% above its IPO valuation of $6.8 billion in June 2021. This makes it one of only two Israeli tech companies along with international e-commerce platform Global-e (Nasdaq: GLBE), which held a Wall Street IPO in 2021 and is currently higher than its IPO valuation. The other eight Israeli tech companies are all at least 50% below their IPO valuations and three of them are more than 70% below their valuations.
monday.com surprised the market in its third quarter results by swinging to fourth quarter profit and forecasting continued growth in 2023. Revenue in full year 2022 was $519 million, up 68% from 2021, and the company forecasts revenue of $688-693 million in 2023, up 33%-34% from last year.
monday.com reported a GAAP net loss of $137 million in 2022, widening 5.9% from 2021 but non-GAAP net loss narrowed in 2022 by 43.6% to $33.4 million, while in the fourth quarter of 2022, monday.com reported a non-GAAP net profit of $22.2 million.
Monday.com cofounder and co-CEO Roy Mann (who founded the company with co-CEO Eran Zinman) and CFO Eliran Glazer spoke to "Globes" about the strong rise in the company's share price.
How do you explain the strong rise, is it just the shift to profit?
Glazer: "18 months ago there was a deluge of IPOs and we entered a relatively saturated market and they didn't know exactly what to think about us. If we 'fast forward' to today, we are presenting a very attractive performance, effective growth, and we are a market leader. I think they are beginning to give us credit.
How is the macroeconomic environment influencing you? Are you continuing to grow?
Mann: "On the one hand, we do see what they are all seeing - we see our large customers taking longer to make purchasing decisions with more people involved. On the other hand, we are growing a lot and the market is growing a lot. We should mention that we are also succeeding with small companies, and that can be less taken for granted in times like these. Small companies are looking for more solutions in one product and monday.com offers them enormous versatility in managing all business processes."
Glazer adds, "The environment has changed very much over the past two years. It is important to react fast and we have reacted fast. We have prepared in advance different scenarios and we are managed proactively. For example, in the middle of last year when we saw that the markets were more volatile, we did more internal work and we managed everything all of the time."
Did your workforce change last year?
Mann: "Yes we grew a lot. We grew the company by 50% and for our size that is very significant. We currently have 1,550 employees and we also plan growing this year, albeit more slowly, as we have grown very quickly and we need to 'digest' this, also because of the situation."
Is it easier to hire employees today?
"Really good people are always difficult to find. Even today we are making very great efforts to find people. I think it is a little bit less difficult but it is not easy."
"Improving the loss margins all the time"
According to your forecasts, you will record a non-GAAP operating loss of $32-36 million this year. When will you present net profits on an annual basis?
Glazer: "According to the original plan it will be by 2025. But we told the market that just as we were profitable in the fourth quarter, there could be one profitable quarter or another. We still have opportunities for very significant investment."
Today the market values profitable companies more than growing companies in contrast to when you held your IPO
It also values the way to profitability. We are improving our loss margins all the time and have presented positive cash flow for the second consecutive year and for a company in full growth - the market knows how to value this."
Mann: "70% of our customers are not in the tech sector and that brings stability because we are not exposed to tech companies which have been reducing their expenditure much more. We have all industries and uses from production line management, managing huge events through to managing tractor fleets. Things that are very different from each other bring a great deal of stability."
Why was there a profit in the quarter when everyone expected a loss?
Glazer: "monday has very significant marketing expenses and online marketing prices fell 20%. There were also accounting adjustments for the end of the year and revenue was $9 million higher than we expected."
"Thinking about acquisitions to complement what we have"
In 2022, monday generated $27.1 million from current operations and ended the year with $886 million in cash. For the first time, they are also starting to think about acquiring companies. Glazer says, "Of course we will continue to invest in the business, we don't want to just sit on piles of cash. On the other hand, we are also thinking about M&As, and starting to look at a world with more normal prices for companies that we can acquire, or invest in a minority stake. This will be in the medium-term and not the short-term."
Mann: "Many companies of our size have made many acquisitions but to date we haven't done that and now we are building up towards this subject. We are thinking of acquisitions that will bring us products that will reach our large range of customers. Thinks that will complement what we have."
Have you changed something in the management of capital by taking money out of Israel and abroad as other tech companies have done?
Glazer: We were fortunate enough to have over $880 million in our coffers, and as part of our cash management strategy, it is divided between Israeli and foreign banks, and we do not need to spend money.
How has 2023 begun?
Mann: "Today we are cautiously optimistic. We see that demand for the product from new customers is very high and that is a very good sign. If you would have asked me during the more difficult periods of last year how things would look at the start of the year I would have expected a bigger slowdown."
Glazer: "We want to continue the innovativeness and distinguishing ourselves from our rivals in the market, and improving the product, the infrastructures and future engines of growth in order to continue to grow in the coming years, not only in 2023."
Published by Globes, Israel business news - en.globes.co.il - on February 16, 2023.
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