Founded in 2012 by two friends, Monday.com is an online service that helps businesses collaborate better. With the help of Google Calendar integration, Monday.com shows each employee’s schedule, allowing them to easily coordinate meetings and events. Monday also offers a variety of features such as task management, file sharing, and project management. However, how do they earn revenue? In this blog, we will discuss various ways Monday.com generates revenue and analyze its current revenue models.
Monday.com is a flexible, powerful cloud-based task/time tracking and collaboration tool that allows teams to manage their time effectively. It’s free for individual use but has a paid subscription option available to larger organizations.
At first, you might wonder whether the model is sustainable. Let’s take a look at how they plan to earn revenue.
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About Monday.com
Monday.com is an Israeli startup based in Tel Aviv. It develops a SaaS product called Workday. The company is not yet profitable. But revenue is growing steadily.
The F-1 filing for Monday.com showed that its 2020 sales grew by more than 200% compared to 2019. However, the company has not yet been able to turn a profit.
How Does Monday.com Make Money?
Monday.com’s work operating system (WOS) is a cloud-based SaaS used by more than 127,000 global companies. These companies employ thousands of people.
Monday.com offers three paid subscription levels (up to 49 people), a discounted enterprise subscription (50+ people), and a free trial.
Here are the monthly rates for each seat:
- Basic: $200
- Standard: $240
- Pro: $400
- Enterprise: Request quote.
Non-profits qualify for an extra 20 percent off their annual subscription rates.
What is Monday.com’s Work OS?
The Monday.com Work Operating System (Work OS) is an online tool for managing projects and tasks. It lets you collaborate with others using real-time messaging, video conferencing, file sharing, and document editing. You can use it from any computer connected to the Internet.
Project Management Platforms allow teams to collaborate with each other and outside parties.
The focus is on visualizing project management through digital boards. Managers can create dashboards to help them monitor multiple project boards. There is no need for any programming knowledge to set up a basic version of the tool.
With Monday.com’s Pro level, enterprises get enterprise-scale capabilities for their business processes.
Strong Growth Rate
In January 2019, Monday.com announced that they were acquired by Salesforce.com for $2 billion USD. At the time of acquisition, Monday.com was used by over 50,000 companies. In March 2019, Salesforce.com reported that the total amount of users reached 130,000. By April 2019, the total user base exceeded 140,000. By May 2019, the total user count surpassed 150,000. By June 2019, the total user count surpassed 160,000.
Monday.com provides services for thousands of small-to-medium sized businesses and more than 330 larger companies, including Abbott, Adobe, Frontier (formerly known as Yahoo!), Genpact, Hulu (formerly known as Fox), Uber, Unilever (formerly known as Kraft Foods), and many others.
By the end of the first three months of 2020, the company had 335 companies as customers who paid more than $50, 000 ARR to the company. There was a 219% increase in those companies paying more than $50,00 ARR to the company in 2019.
The ARR (annual recurring revenues) for Q1 2021 was $30 million, which is an increase of nearly 50% compared to the previous year’s Q1 2020.
The F-1 states that the company expects to generate $236 million in annual revenues by 2021, up from $159 million in 2020. The company projects an 85 percent increase in its annual revenues between 2019 and 2021.
Company Valuation
The company was founded in February 2012, but its first public release didn’t come until 2014.
In 2016, in Series A funding rounds, the startup received $7.6 million in the capital. In April 2017, the startup received another $25 million in Series B funding. In November 2017, it was rebranded as Monday.com. It received $50 million in Series C funding in 2018. In July 2019, the startup received an additional $150 million in Series D funding. At the end of 2020, the startup had a valuation of $2.3 billion.
According to Bloomberg, Monday.com’s initial public offering (IPO) on June 10, 2021, sold 3.7 million stock units at $155 per share, which was a higher-than-expected price. The IPO brought in more than $574 million for the startup. This values the startup at more than $7.5 billion.
Both Salesforce.Com and Zoom Video bought $100 million in Monday.com shares. The company is now worth about $250 per share.
Revenues are up, and the company’s valuation is astronomical, but at what cost?
The main problem is the high cost of marketing and selling.
The startup reported $121M in net loss from operations (NOL) since inception. Its operating margin was negative at -2%. This means the startup earned less than half the revenue of the total NOL.
This financial condition is quite common for companies in their growth phases. For instance, Amazon wasn’t profitable for several years after raising a lot of cash. And it was big news in the last quarter of 2002 when Amazon first became profitable and reported one penny of earnings per share.
A closer look at Monday.com’s financial statements shows that its marketing and sales expenses exceeded its revenue each quarter from July 2019 through March 2020.
If all other costs were zero, total sales expenses alone could cause the business to be unprofitable. For instance, in the most recent Q1 of 2020, the business generated $59 million in revenue but spent $63 million on sales and advertising.
Net Loss is Decreasing
The net income trends are improving but show decreasing profits.
Net losses for 2019 were $92 million, which exceeded total revenue by $52 million. For 2020, net losses were $152 million, which was slightly less than total revenue.
For the $59m in total revenues earned during quarter 1, 2021, the net profit was $39m. Revenues are increasing, and the overall net profit is decreasing.
How long can Monday.com sustain its cash burn rate?
It’s easy to get into trouble when cash flow is negative, but if you spend less than your revenues, then eventually you won’t be able to keep up with your expenses.
Monday.com raised 574 million dollars from its initial public offering (IPO), which means it has enough capital to work with now.
Furthermore, the business may be able to borrow money at an extremely low-interest rate. However, these historically low-interest rate levels are very likely to rise.
When Federal Reserve Chairwoman Janet Yellen talks about the prospect of interest rate hikes, the stock market tends to react negatively.
From summer 2020 until the start of 2021, shares of publicly listed growth companies rose to new heights. Since then they’ve been declining.
An example of this trend is Palantir Technologies (NYSE: PLTR), which has been trading at an average price of $38 since January 20th, 2020, but was trading at an average price just above $20 by July 21st, 2020. Will Monday.com (NYSE: MNDY) follow a similar pattern?
As of July 2021, the MNDY shares continue to trade at an average price of over $200 each, which is well above their IPO price of $155 per MNDY share in June 2021.
A lower initial public offering (IPO) price for Monday.com could make it difficult for the company to attract new investors at attractive terms. What other risks might be lurking?
The Competitive Threat
Getting an organization to adopt a new software solution is difficult. Once they’ve adopted one, however, it is hard to persuade them to change unless there is a good reason.
There are lots of software vendors in the office productivity space, including Atlassian, Asana, Citrix Systems, FreshWorks, Smartsheet, Salesforce, Workday, Wunderlist, and Zendeskt.
The greatest threat doesn’t come from these direct rivals; rather, it comes from the behemoths of Apple or Facebook.
Back then, Netscape was worth $1 billion. Then Microsoft created an alternative web browsing software called Internet Explorer and gave it away for free. It basically killed off Netscape.
If Google or Microsoft decide to add something similar to Monday.com into their cloud-based offerings, they could potentially make it a new feature for their enterprise-level products.
Those giant companies wouldn’t necessarily need to make a lot of money off their own work management software as a stand-alone product. They may want to offer a very useful Work OS as part of a larger package deal.
Monday.com knows that a very large company with established products can use its own customer base to gain market share.
They could discourage people from using Monday.com’s product by making their product less valuable than competing offerings (such as Google Docs), bundling their product with other popular services, and/or building a technological moat around their product.
Long-Term Revenue Risks
Monday.com offers a SaaS business strategy that relies on ARR for revenue generation. It has an annual subscription plan at its core.
Most of the Monday.com memberships include an automatic renewal feature. However, organizations aren’t required to renew their membership every year. Members can easily unsubscribe from the service.
Some organizations may decide not to continue their subscriptions because they don’t want to pay for them anymore.
- Not satisfied with the Monday.com service or system.
- Monday.com pricing.
- Competitors’ pricing.
- What capabilities does each system offer?
- A decrease in the number of people using the Monday.com system within an organization.
- Budget reductions for buying SaaS software.
Monday.com aims to build its competitive advantage by offering an open and modular architecture that is flexible and scalable.
The company focuses on quickly developing end-to-end software solutions that are easy to understand and highly effective for its clients.
Conclusion: How Does Monday.com Make Money?
Monday.com has been gaining momentum among small businesses since its launch in 2007. They offer an array of online services including email, task management, project management, CRM, invoicing, time tracking, and more. We wanted to understand why they’re growing so fast and whether they could be a viable option for small businesses looking to get out of the office.
It’ll be interesting to see if it continues to grow at its current pace.
We’ve explained all the major sources of revenue for Monday.com. Now, we hope you understand how Monday.com generates income. It’ll be fun to watch how Monday.com finances its ambitious plans for rapid expansion and adding lots more new functions to its product.
It’s finally time to finish this up!
Overall, Monday. co is a productivity app designed to help you get things done either at work or at home. The difference between it and other similar apps is that it focuses on helping people get things done rather than providing them with an organized daily schedule. You’re free to choose which features you’d like to utilize since there are plenty of tools available for both beginners and experts.
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