Founded in 2012, Monday.com is a simple team calendar and productivity tool that increases business collaboration. By showing the company’s team members, who are doing what and when, Monday.com has become one of the fastest-growing productivity tools in the world. But how does Monday.com make money? In this post, you’ll get to know various revenue streams Monday.com uses to generate revenue and analyze its business model in detail.
monday.com is a flexible and powerful cloud-based project management platform that enables teams to schedule, track, and collaborate on tasks, projects, and everyday work. This for-profit company makes money by charging a subscription fee for its software from individuals, small businesses, and enterprises.
Right off the bat, you may be wondering – Is the model sustainable? How are they going to make a profit? Well, let’s get right into it.
Monday.com is a growth company from Tel Aviv. It developed a work management platform offered as cloud-based software as a service (SaaS). The company is not making a profit. However, revenues are growing substantially.
The F-1 filed May 17, 2021, before the company’s IPO, shows revenues more than doubled in 2020 from the 2019 performance. Along with annual revenue growth at $161 million, sales and marketing expenses exploded. But when will Monday.com be profitable?
How Does Monday.com Make Money?
The Monday.com work operating system is a cloud-based SaaS used by over 127,000 organizations globally. Many of these organizations have thousands of workers.
Monday.com has three paid business subscription levels (three-seat minimum, up to 49 seats) and a discounted enterprise level (50 seats or higher).
Here are the prices per seat/month:
- Basic: $200
- Standard: $240
- Pro: $400
- Enterprise: Request quote.
Prepaid annual subscriptions receive an 18% discount from the monthly rate. Qualified non-profit organizations get an additional 20% discount from the annual subscription price.
What is Monday.com’s Work OS?
The Monday.com work operating system (Work OS) is a cloud-based SaaS offering that users can access from anywhere with a secure Internet connection.
This project management software platform allows users to plan, design, manage and track projects and business processes that make up everyday work in an organization. The team members can collaborate with others in the organization and external participants in projects.
The focus is on using visualization to manage projects with a digital board. Managers can create a dashboard to manage multiple project boards. No software coding is required to get the system to deliver a high level of functionality and usefulness.
Enterprise automation and integration with enterprise-grade security and governance are enabled with the Pro level of the Monday.com platform.
Strong Growth Rate
TechCrunch reports that Monday.com had about 35,000 organizations as its customers in 2018. This grew to over 80,000 in 2019. By 2020, the company had more than 100,000 organizations using the Monday.com system. This number passed 127,000 in Q1 2021.
Monday.com’s customers include thousands of small- to medium-sized businesses and more than 330 large enterprises, such as Abbott, Adobe, Frontier, Genpact, Hulu, Uber, Unilever, and many others.
The F-1 states that by the end of the first quarter of 2021, the company had 335 organizations as customers who paid more than $50,000 in annual reoccurring revenues (ARR) to the company. There is a 219% year-over-year increase in those organizations that pay more than $50,000 ARR to Monday.com.
The ARR growth rate in Q1 2021 exceeds the rate the company experienced during the first quarter of 2020, before the pandemic. Many technology companies like Monday.com experienced strong revenue growth and increased value from the impact of the pandemic.
The F-1 further states that the company in May 2021 has projected $236 million in annual revenue for 2021, up from $160 million in 2020. Year-over-year projected revenue growth is 85%.
The company’s history shows it started in February 2012 as daPulse (a spin-off from Wix) with $1.5 million in seed capital. The commercial product launch came in 2014.
In 2016, in a Series A funding round, the company raised $7.6 million. In April 2017, it raised another $25 million as Series B. In November 2017, the company was renamed Monday.com. It raised $50 million as a Series C round in 2018. In July 2019, the company raised $150 million more in Series D funding. This valued the company at $1.9 billion. In total, before the IPO in 2021, the company raised $234.1 million.
Bloomberg reports that the IPO for Monday.com on June 10, 2021, sold 3.7 million shares at $155 each, which was a higher price than the company expected. The IPO raised $574 million for the company. This valued the company at more than $7 billion.
Both Salesforce.com and Zoom Video bought $75 million in Monday.com stock. The stock is currently trading for about $208 per share (July 2021).
Revenues are up, and the company’s valuation is astronomical, but at what cost?
The main issue is the exorbitant costs for marketing and sales.
The company reports $121 million in cash burned since its inception. It also notes its capital efficiency is greater than 2X. This means the company generated more than twice the ARR of the total cash burned.
This financial condition is not unusual for a company in a growth phase. For example, Amazon was not profitable for many years after the company raised a ton of money. It was big news in the fourth quarter of 2002 when Amazon finally became profitable and announced one cent of earnings per share.
A closer examination of the numbers for Monday.com compares the marketing and sales costs with the revenues earned. Protocol reports that the total expenses for Monday.com’s sales and marketing were greater than the revenues for every quarter since mid-2019.
If all other costs for the company were zero, total sales and marketing expenses would, all by themselves, make the company unprofitable. For example, in the most recent first quarter of 2021, the company generated $59 million in ARR while spending $63 million on marketing and sales.
Net Loss is Decreasing
The net loss trend is improving but showing decreasing losses.
In 2019, Monday.com had a net loss of $92 million. This amount exceeded total revenues. In 2020, the company reported a net loss of $152 million, which was slightly lower than the total revenues.
For the $59 million in total revenues earned during Q1 2021, the net loss was $39 million. Revenues are going up, and the total net loss is going down.
How long can Monday.com sustain its cash burn rate?
Cash burn is manageable, but over the long term spending more than revenue is not usually sustainable. How many US dollars can you sell for 98 cents? All you have until you go bankrupt.
Monday.com raised $574 million from the IPO, so that will give the company plenty of capital to work with.
Moreover, the company may be able to load up on debt at low interest rates. However, interest rates that are at historical lows are very likely to increase.
According to CNBC, when the current Fed Chairman, Jerome Powell, speaks about the possibility of interest rates going up sometime in the future, the stock market negatively reacts.
The stock of publicly traded growth companies, as a sector, soared to new highs from summer 2020 up to the end of 2020. Some share prices peaked in January 2021 and have been going down since.
An example of this stock market trend is Palantir (NYSE: PLTR). PLTR traded for around $39 in January 2021 and now trades for around $22 (July 2021). Will Monday.com (NASDAQ: MNDY) follow the same pattern?
So far, the MNDY stock continues to maintain a price of over $200 per share (July 2021), which is nicely above its IPO price at $155 per share in June 2021.
A lower valuation for Monday.com may make it harder for the company to raise any additional financing it may need at attractive terms. If Monday.com solves the cash burn problems, what other threats are there?
The Competitive Threat
There is some stickiness to getting an organization to embrace a work management platform. Once an organization is invested in a certain system, it is not easy for competitors to get them to switch unless there is a compelling reason.
There are many companies in the workplace operating system space offering competing solutions. These include Atlassian (offering Trello and Jira), Asana, Citrix, Freshworks, Smartsheet, Notion, Workday, Wrike, and Zendesk.
The greatest threat comes not from these direct competitors but the behemoths of Microsoft or Google.
For those old enough to remember, Netscape, the company that made the Netscape Navigator browser, had a market valuation at the IPO in August 1995 of $1 billion. Then, Microsoft decided to create a competing browser with Internet Explorer and give it away for free. This essentially drove Netscape out of business.
Something similar might happen to Monday.com if Google or Microsoft decides to make work management a new feature of their cloud-based offerings as part of a larger enterprise-wide portfolio of productivity tools.
These huge companies would not necessarily need to profit from the work management tools as a standalone platform. They might decide to give away a very useful Work OS for free with a bundle of other offerings.
Monday.com is well aware of this risk and realizes that a very large competitor with well-established product lines can leverage existing customer relationships.
They could create a disincentive for using Monday.com products by selling a Work OS at a loss, bundling a Work OS with other popular services, or creating a technology “moat” through a closed technology platform.
Long-Term Revenue Risks
Monday.com has a SaaS business model based on ARR that has an annual subscription model at its foundation.
Many of the Monday.com subscriptions have an auto-renew feature; however, an organization is not obligated to renew a subscription. Users can cancel a subscription very easily.
The reasons why an organization might choose not to renew a Monday.com subscription include:
- Becoming dissatisfied with the Monday.com system or services.
- Monday.com pricing.
- Competitors’ pricing.
- Capabilities of competing work management systems.
- Decrease in users of the Monday.com system at a specific organization.
- Reductions in budget allocations for buying SaaS products.
Monday.com has the goal of building its competitive strength by having an open and modular infrastructure that is flexible and adaptable with the ability to scale horizontally and vertically.
The company’s focus is on rapidly building end-to-end SaaS solutions that are easy to use and highly effective for its customers.
Conclusion: How Does Monday.com Make Money?
Monday.com has gained popularity among small business owners for its simple team collaboration tools and awesome pricing plans. Their business model is a little complex and no one is ready to talk about it so we had to dig through all kinds of resources and build enough data points for the story here.
It’s a young company but is already showing big potential with millions raised in investment from venture capital firms such as Sapphire Ventures and HarbourVest Partners which shows it has a lot of room for growth.
We explained all the main sources of revenue Monday.com has. Hopefully, now you have a good idea how monday.com makes money. It’ll be interesting to see how will Monday.com finance its ambitious goals of rapid expansion and adding lots of additional features to its product.
It’s time to wrap this up.
Overall, Monday.com is a tool that’s intended to help you become more productive, be it for the work you do or managing your personal life. The way it’s different from other similar services is by focusing on getting things done rather than managing the day-to-day details of your life. It’s up to you how you want to use the system since there are a lot of resources that are available for both beginner and advanced users.
If you have any queries, don’t hesitate to ask them via email as we will respond to them as soon as possible. Thanks for reading!
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