Monday.com (NASDAQ: MNDY) had another beat-and-raise quarter because the combination of its offering and operational quality delivered results. The company delivers results for its clients and investors and has its stock on track to hit a multi-year high soon. The question is whether this market will dip again before crossing the critical threshold and if there is a chance it might. The takeaway is that, dip or no dip, this market is simmering and could come to a boil at any time.
Monday.com Advances After Another Beat-and-Raise Report
Monday.com technology resonates with users because of its plug-and-play platform. The platform is easy to use, systems are easy to assemble, and results are quick to follow. The business's revenue grew by 34.4% in Q2 to $236.1 million, accelerating its growth sequentially from Q1 and sustaining a high double-digit pace for another year. The revenue is also 300 basis points above the analysts' consensus figure, compounded by increased guidance, so investors may expect to see them revise their estimates and price targets higher.
The dual forces of increased client counts and service penetration drive revenue growth. Client growth approached 50% for businesses contributing more than $50K and $100K in annual recurring revenue, with net retention up 110% systemwide and 114% for large clients. Net retention is a measure of revenue generated by existing clients. A figure above 100% shows increased penetration: Monday.com’s figures show business momentum is present and driven by more lucrative, larger businesses.
As good as the top-line data is, the margin and bottom-line news is better. The company’s increasing revenue leverage and push toward more efficient operations significantly improved all margin comparisons and the first quarter of GAAP profits. The adjusted operating margin widened by 700 basis points to 16%, driving a 130% increase in adjusted operating income and robust cash flows. Cash flow is up 17% compared to last year, with the only bad news being a contraction in the FCF margin. However, FCF is up 10% compared to last year on a solid 21% FCF margin, providing nearly $51 million in useable cash.
Guidance is the brightest spot of this report. The company raised guidance for Q3 and the year, putting the new targets' low ends above the consensus estimates. The guidance may also be cautious, given the trends, which include numerous guidance increases followed by company outperformance. Regarding the balance sheet and the company’s financial health, Monday.com is net-cash with cash rising and total liability leverage less than 0.5x the cash position. Liability also rose but was insufficient to offset cash and asset builds, leaving shareholder equity up 12% YOY.
Analysts Are Lifting Sentiment and Price Targets for Monday.com
No analysts issued a revision in the first few hours following Monday.com’s Q2 release, but they will likely be positive when they come. Until then, the sentiment trend is bullish, leading the market to a fresh multi-year high. Critical details include a 25% increase in analysts covering the stock over the past twelve months and a rising price target. The involvement of 16 analysts indicates a strong belief that this stock will surpass the $255 consensus price target, potentially reaching closer to $300. The $255 target is a critical detail because it would be the highest traded price for this stock since early January 2022.
The market for MNDY is struggling with resistance at the current high, but the action is suggestive that a higher move is coming. The trading volume is rising, and the MACD and stochastic indicators are forming a solid buy signal that will likely extend the rally. The technical targets suggest a move above $300 is possible before the year’s end.
