A Good Case of 'The Mondays'
Let's look at how I'd play monday.com as it rises quickly after earnings.
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Most people don't like Mondays. They sure do seem to like this "Monday," however, the one with the lower-case "m": monday.com Ltd. MNDY.
MNDY had a down day on Friday but was still able to post a winning week. Then, the company released fourth-quarter financial results this morning, and, wow, did it beat expectations. (For the balance of this article, I will refer to monday.com by its stock symbol -- MNDY, so that this whole piece doesn't become an awkward series of links to the firm's website.)
For the period ending De. 31, MNDY posted an adjusted earnings per share of $1.08 (unadjusted EPS: $0.43) on revenue of $267.976 million. The top line print was good for sales growth of 32.3%, while beating consensus view. The adjusted bottom line results absolutely crushed expectations for something close to $0.79. The unadjusted EPS print more than doubled Wall Street's view. The bulk of the adjustment made was for the purposes of share-based compensation.
What Does MNDY Do?
This is an Israeli (Tel Aviv) headquartered company whose cloud-based software platform enables users to create custom applications and project management services. Within the platform is a Work OS (operating system) that deploys building blocks to aid clientele in reaching their ends or developing their applications. The system prioritizes teamwork and streamlines workflows across such business functions as customer relations management and marketing. Aside from Israel, the company has office facilities in several U.S. cities, a s well as London and Sydney. The company had a team in Kiev. I have been unable to tell if they are still there.
Operations
As revenue generation grew 32.3% to $267.976 million, the cost of that revenue 36.1% to $30.502 million. That took gross profit up to $237.474 million (+31.8%), as gross margin dropped slightly from 88.9% to 88.6%. Total unadjusted operating expenses increased 25.7% to $227.878 million, leaving operating income of $9.596 million (up from a loss of $1.145 million). On an adjusted basis, operating income grew 90% to $40.265 million.
After accounting for interest, other income and expenses and taxes, unadjusted net income printed at $13.005 million (+86.5%), leaving unadjusted earnings of $0.43 per fully diluted share, up from the year ago comparison of $0.24. On an adjusted basis, net income printed at $57.3 million (+70%), leaving adjusted earnings of $1.08 per fully diluted share versus the year ago comp of $0.65.
Commentary
The company has co-CEOs, Roy Mann and Eran Zinman, who are also its co-founders. They made a joint statement in the press release: "We are proud to have further expanded our product suite with monday service, which is already seeing rapid adoption from both existing and new customers.”
Then, they added, "As we look to 2025, we are excited to double-down on our AI efforts, with a focus on AI Blocks, Product Power-ups, and our new Digital Workforce of AI Agents. We believe AI can be a game-changer for our customers, giving them the ability to transform their workflows and scale faster than ever before.”
Fundamentals
For the quarter reported, MNDY generated operating cash flow of $76.711 million. Out of that came capital spending of $3.447 million and capitalized software costs of $561,000, leaving free cash flow of $72.703 million. The company did not return any capital to shareholders.
Turning to the balance sheet, MNDY ended the period with a cash position of $1.462 billion and current assets of $1.532 billion. Current liabilities add up to $575.615 million. This includes no short-term debt and deferred revenue (which is not a true financial obligation) of $339.951 million. That puts the company's headline current ratio at a strong 2.66 and it's adjusted current ratio at a herculean 6.49.
Total assets amount to $1.686 billion. There are no intangibles included in this number. Total liabilities less equity comes to $655.277 million. No long-term debt on the books either. This is one heck of a healthy and robust balance sheet.
Guidance
For the current quarter, MNDY sees revenue of $274 million to $276 million, which is better than the slightly less than $274 million that Wall Street was looking for. Adjusted operating income is expected to land at $25 million to $27 million for an adjusted operating margin of 9% to 10%.
For the full fiscal year, MNDY is looking at total revenue of $1.208 billion to $1.221 billion. This brings the midpoint of the range above the $1.21 billion consensus, while assuming a negative impact of 100-basis to 200-basis points from currency exchange rates and would be good for year over-year-growth of 24% to 26%. Full year adjusted operating income is seen at $134 million to $142 million, which would be good for an adjusted operating margin of 11% to 12%. The company also sees full year free cash flow of $300 million to $308 million.
My Thoughts
This is really impressive. Margins are awesome. The growth is there. Cash flows are strong. The balance sheet is strong. The only problem is that everyone knows it already and the stock is up almost 30% this morning. If you're not already in it, and I am not, you have to wonder if these horses have already left the barn.
Readers will see that MNDY formed a double-bottom reversal with a $241 pivot in early 2024 / early 2025 and then went right into a one-month ascending triangle pattern with a $267 pivot. Both of these are bullish patterns and if I had seen this and correctly read the tea leaves, my target price would have been around $334.
Well, I see the last sale is right around $333. Does that make MNDY a trading short? Not necessarily, but maybe. Relative strength has gone parabolic, as the daily Moving Average Convergence Divergence has improved dramatically on elevated trading volume. My thoughts? MNDY is a great little company with a bright future. At 80-times forward looking earnings, today's move might be too much, too soon.
Don't forget, the president will be making some announcements later today involving tariffs. That puts the whole equity market at risk for a short-term negative algorithmic reaction. I think this stock is a candidate for a trading short.
My ideas would be to either short a small amount of equity up in the mid $330s and place a stop loss order out there as a cover with an 8% max loss. A second way to skin this cat would be to get long a Feb. 21 $330/$320 bear put spread for a net debit of $4.10 to $4.25. For a single contract spread, that would be risking $425 to try to win back $1,000.
At the time of publication, Guilfoyle had no position in any security mentioned.
