Chit Chat Stocks - Should I Buy Monday.com Stock? (Ticker: $MNDY)

Episode Date: December 17, 2025

On this episode of Chit Chat Stocks,  Ryan dissects Monday.com (Ticker: MNDY), concluding with his decision on whether to buy the stock or not. We discuss: (00:00) Introduction (03:37) Growth Metrics and Business Model (06:19) History (09:30) Understanding the Product and User Experience (12:20) Market Position and Competitive Landscape (15:16) Financial Analysis and Valuation Insights (33:28) Profit Margins and Stock-Based Compensation (43:25) The Stickiness of Software and Customer Retention (49:53) AI's Impact on Task Management Software (57:30) Management Dynamics and Company Valuation ***************************************************** Sign up for our stock research service, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into the Chit Chat Stocks podcast, a podcast to help you find your next great investment. My name is Brett Schaefer, and today we have another stock research episode from Ryan, co-host of the show. We are covering Monday.com. If you've never heard of this company, I should say its ticker is MNDY. You can look up while you're listening to

the show, maybe some metrics on fiscal AI, look at where the stock is trading, all that good stuff. If you are listening to the show for the first time, make sure to follow us wherever you are a listener. Apple Podcasts, Spotify, YouTube, give us a five-star review if you can. And we are going to today cover a comprehensive overview of Monday.com, its history, business model, management, what we think of its competitive advantages, valuation, and what Ryan thinks about the stock. Today, we'll close with his investment decision, as we always do with the stock research episodes while i ask him and pepper him questions throughout the episodes of ryan you have some metrics here to introduce monday.com take us through the business how are you going to introduce

what this company is a not the this isn't an ai sexy space startup it's b2b sass but it's quite interesting they're growing quickly take us through some of the numbers and how you want to introduce the company? Yeah, I've looked at a lot of B2B software companies. I feel like sometimes I throw around kind of that terminology, but just business to business, software as a service, so not licenses, cloud-based. I've looked at a ton of those companies lately, and I'm starting to get worried that i'm wasting my time and part of that is because a lot of the b2b sas companies especially over the last four months have had really rough runs and the stocks have gone nowhere actually they've gone down quite a bit but over the last year or so they haven't really gone

anywhere but the other part is it's for most the b2b sas companies it's very competitive it's a very competitive industry the profits constantly feel theoretical like there's always huge adjustments from the management teams stock-based compensation is usually absurd at these companies and the management teams in general and the proxy statements usually piss me off like it's one of those things where i go through the work i think wow this is a great business and then i read the proxy statement and i somehow feel angry at management well you kind of get that situation where you go, oh, hey, they're posting 20% adjusted EBITDA margins, maybe 30%, something like that. And you go, okay, well, the bottom line margins should be okay.

And then there's nothing there. So you, I've been there before. It's taken me away from the industry, but what attracts you to money.com in particular? Yeah. Let me share a few stats because these are some facts that have kept me coming back to money.com so in 2019 they had 90 000 total paying customers a lot of those were small businesses today they have more than 250 000 a lot more of those are enterprise customers than there was back then in 2019 monday had 73 just 73 so like that think about this is it's a pretty small figure monday had 73 customers that were paying more than 50 000 a year for their software that was in 2019 today they have more than 4 000 customers paying more than 50 grand a year for their software in 2019 monday generated

78 million dollars in revenue this year they're generating or they're going to generate roughly 1.2 to 1.3 billion in revenue a couple more stats here so bear with me in 2019 monday had less than 500 employees today they have about 3 000 employees now i i know that's not like a stat shareholders love to see but i'll talk about why i guess it's important in 2019 monday.com had 176 million dollars in cash and investments on their balance sheet Today, they have $1.7 billion in cash and investments on the balance sheet. And on average, customers spend 12% more with monday.com every year. So 112% net revenue retention rate.

I list these facts not to bore listeners, but to illustrate a point. Despite the frustrations with management, the spending, all this stuff, monday.com today, the organization that you look at and see today has the ability, emphasis on ability here because they're not actually doing it. They have the ability to earn way, way, way more profits than they did in 2019. The organization is way larger and it's larger in basically all ways, revenue, customers, employees, you name it. The capacity to earn, aka future earnings, is what investors care about and that is why i keep coming back so as frustrating as it is to look at stock-based compensation employee count growing really really quickly with the

software company there it can be worth the investment and that is kind of i mean that's the software playbook right it's high fixed costs low marginal costs build a product that you can sell widely be the leader have the scale advantages get the customer lock in invest a lot today to reap the benefits down the road i'll leave it there but that is what has kept me intrigued with money.com is just the sheer growth okay before we get into the history just a couple of follow-ups one uh i should note for the listeners in ryan's show notes here he has over the last 12 months, monday.com generating $1.1 billion, that's USD, correct, in revenue, just gap profitability, operating income-wise, only $5 million in earnings. Now, what are,

I'm assuming, SaaS-like gross margins, 80%, something like that, and correct me if I'm wrong there, but as we go through this episode, should listeners kind of assume that there is the potential for an adobe like autodesk like what have you operating margin at scale for this business 30 maybe even higher yeah maybe in the long long run it's possible installation software is running and what would they they could earn that is that is that what we should uh assume it has the same basic unit economics yeah there's no big outlier here like 90 gross margins they spend a ton on operating expenses as you'd imagine and theoretically as the business scales those will come down and there should be operating leverage i'll go through the numbers sort of

towards the end of the episode on what i'm expecting but yes it should follow if if everything goes right it should follow the kind of the standard blueprint for a sas company where you you get great operating margins in the long run but let's talk about the money.com story how do we get here it's not that old of a business it basically launched 10 years ago little over uh and it's i don't want to say disrupted but it's carved out a huge chunk of the market in what is already a very competitive space so let's talk about the story money.com was actually born out of a old flame of ours, Brett, Wix.com. This was initially intended to be an internal tool for Wix. Did you know that? No, I did not. But seeing the stock-based compensation

similarities, I guess I can see where Monday.com got their employee incentive strategies. and well yeah they're kind of similar on the income statement i'll just leave it at that yeah and we've talked about this before but wix and monday are both israeli based and there is like they are for the most part the big tech companies in that area of the world there's some others as well but they are considered kind of big tech in that area so sometimes they kind of operate like it like they operate like it feels like they operate like the metas and the googles of silicon valley but in in israel about 100 billion in revenue yeah yeah and not obviously the employee base is much smaller but there's kind of those parallels it almost and they were

privately funded for a long time so sometimes it kind of feels like they still act like a vc-back company, but I'll get into that in a second. Roy Mann and Aaron Zinman, they're both still leading the company today as co-CEOs. They were both working at Wix. They wanted to build an internal tool for task management to help solve some of the scaling and communication issues that the team was experiencing. And I'll also pause here to say, if you don't work in software or in the software industry, especially at the startup level, this is a very common problem at early stage companies. There is tons of work, tons of tasks, tons of things that need to get done. The tasks are getting lost. It's hard to know which tasks should be prioritized because

you're getting new ones every single day. Some of it's bugs, some of it's new product features. It's hard to know, do we maintain the existing product? Do we try to build the new product? And they were basically dealing with this at Wix. And they were saying, we need a better system for organizing these tasks and managing and prioritizing. And so they put Aaron and Roy on the task of building it. and it i think basically it was good commercial launch i'll talk about that in a second but there was in the internal wix deployment when they launched there apparently everyone at wix loved it i can't i say loved but i don't think anyone is like in love with task management software it's more so provided value it provided value is it was an improvement from their existing system and so roy and aaron i hope i'm saying that right it might be iran e-r-a-n uh decided to name the

company and spin it out on its own now in case you're wondering wix did get compensated for this because i was a little worried i'm like wait they just spun it out why didn't wix like take it the because it was made on wix's time obviously and time wix's resources wix got a inequity stake In the business, I'm not totally sure what the exact amount was because it got diluted down over time, over the various Series A, Series B, all those funding rounds. But I believe at IPO, it was worth about $400 million. So they were compensated well for allowing Roy and Iran to spin out the business. Roy and Iran named it DaPulse initially. The company's name was DaPulse, D-A-P-U-L-E-S-E.

uh terrible name obviously in hindsight they recognize that too and they spun it out into their own company in 2012 they raised one and a half million dollars in seed funding and in 2014 they launched the product commercially so available to everyone and i don't really know if it was a massive hit from the get-go there wasn't a whole lot of numbers from like those first early years but i imagine having wix as a customer early on was helpful in establishing credibility when going out to other businesses and trying to sell anyways by by 2017 monday and i sorry i mean the pulse uh had gotten off to a pretty good three-year start they had raised more money so i'm assuming that there was some momentum behind the business however people were

making fun of the name constantly maybe that's not too surprising looking back on it but there was quite a lot of confusion around what the platform actually did and apparently people thought it was a rapper online they thought dub pulse was a rapper that sounds yeah that's surprising yeah they uh after much criticism decided to change the name to monday.com in 2017 they've had or they had several funding rounds after that reaching i think the furthest they reached was a series d in 2019 not not the worst we've seen we've seen some companies come public that had like series f series g uh which series d is kind of i think sort of the standard blueprint of VC funding until you decide to go public. And they went public in 2021. Really good

timing there. Obviously, looking back on it, $7.6 billion valuation was their, I guess, market cap when they went public. And they raised $547 million in the process. They never really burned money because they use so much stock as a lever for compensation pretty much all of the money they accumulated over the funding rounds still sits on the balance sheet today they because they've been free cash flow positive and use so much stock as i mentioned as their sort of compensation lever okay when i sell my business i want the best tax and investment advice i want to help my kids, and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth Advisor

creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. it seems like a pretty straightforward history as our type of listeners will probably pick up on and i think they would agree with us there is a tug and pull from the value investor types that would go hey you are profitable now let's maybe pay some people in cash or take this massive cash you have in the balance sheet and start repurchasing stock we don't want 10 percent dilution in perpetuity. That's going to ruin our returns, but we'll get to that in the valuation section. Let's talk about what monday.com actually is. I personally used it once when I worked at a

science laboratory. And as you're going to get into, we used to have just, hey, why don't you do this? Why don't you do this? Someone just messaging you, emailing you. And then one day I showed up and I asked my manager, hey, what do you want me to do today? And he just points at the computer and goes, Monday.com. And then I think that explains it. You get your tasks and then you get to say the progress on those tasks. Is that correct? Yeah, basically.

I mean, task management software, most people have probably used something that is like this or they've tried to build their own solution. Basically, it's a way of keeping track of everything that you need to do, you have done. It's a system of record. It's a great way to monitor where people are at on various projects. And so that core functionality, like the core purpose that it serves, is not novel. Monday certainly did not invent the task management industry, but they sort of put a different spin on it and were able to attract customers by making it very user-friendly. So it's not really easy to describe the user interface or user experience of a software product over a podcast, but I'll go ahead and give it a try. basically if you're a money.com user platform allows you to create tasks assign those tasks monitor the progress communicate about them so brett's sharing the screen here for those that

want to visual but it's basically that that is the basics like monitoring progress of tasks throughout various different departments within an organization the biggest difference when you look at monday versus other task management tools in my opinion is that monday is a lot more visually appealing so and it seems simple like i mean so what the colors look a little different but it's very like building blocks drag and drop type of task management as opposed to like it's low code no code environment so there's no you can customize it as much as you want without having to create any code and it is just very very intuitive and so this was like and that's a big part of it was it was so intuitive that you could just automatically subscribe get started

it did not require a lot of uh like there weren't much barriers to getting started here you didn't have to get acclimated for a month get to know the software is very simple and and that allowed it to scale quickly especially with small businesses and like small teams within an organization so like if you're carving out a team to do like an individual project they need their own task management software for some reason they would adopt money.com and then pretty quickly it would spread within an organization because people liked it i think it's simple to simple enough to say they just built a better mousetrap they built better cleaner more intuitive task management software and it really is it's not like the core work operating system task management product that

monday offers can be applied to pretty much any department so right now two percent of their customer base uses it for hr 47 uses it to manage their clients 14 for finance management 21% use it as a ticketing system. I actually might have even got the HR figure wrong. I might have accidentally deleted it. But basically, it's really widespread. It's not like it's only used for a single department. That is the core product.

That is 90% of revenue. Now, what monday.com has been trying to do over the last few years is leverage the core tech that they've built and repurpose it for specific verticals and obviously add kind of specific features that are designed for those verticals. So think they've done this with Monday CRM, Monday Dev. Most recently this year, they added Monday Service. And Monday CRM, for example, I think you can assume what it is by the name, but it's designed for sales teams.

It's a customer relationship management platform. Launched in late 2020 and recently crossed $100 million in ARR. It's still growing quickly. accounts are growing 61% year over year, and it's just highly focused on CRMs for small to mid-sized customers. Salesforce is obviously kind of the juggernaut in that industry when it's, especially on the enterprise side, but Monday.com has done a good job building this out for small and mid-sized businesses. The second product there that I mentioned was Monday Dev. This was launched in late 2022, and it doesn't seem like it's been super successful, really. I think it

Is that like 15 million ARR? So it's been three years. They don't really have, they're not very strong with development, software development, technical community. Yeah. I mean, maybe on the small, the mid-sized business side, development teams have just used the core product as opposed to signing up for Monday dev. But when you talk about enterprise-level development teams, when they're assigning tasks and building new features, they primarily use Jira from Atlassian, is kind of the elephant in the room. And then there's tons of other competitors in that space. Linear is one that's very popular.

I think Microsoft has one, Microsoft DevOps. ops uh but basically yeah it's that has not really been the department or focus uh or at least has not been the early adopters from what i've seen but yeah monday dev they're trying to cross sell it we'll see it's been the slowest to scale so far of all the products and the last one is monday service so this was launched in early 2025 it's their ticketing management platform for customer support, HR requests, internal tickets. And this has been their fastest growing product in their history. They're at just $7 million in ARR, but accounts are growing 45% quarter over quarter. And then really the gist of it is that 90% of the business, still that core work operating

system, and now 10% of the business is these other vertical specific products. And they continue to lay on layer on ai capabilities to their various services which i like i think that's where i have found the most value in ai is when it's like some a platform i'm already using and it just cuts out some of the boring parts of using the platform so they're trying to cross sell these i have some doubts about their abilities to do that frankly like if you right now six percent of their customers use two or more products and they think they can get that to 40 but if i like and they're also moving up market so if i'm a big enterprise let's take i don't know a big they use jira and all they're pretty locked into from what i can tell as someone who works for

them with the atlassian products and salesforce products right and even if yeah that's what i was going to say is if you've got even if you adopt money.com for some task management or some department say you use it for finance it's not easy to go hey you know our finance department department uses us let's get your whole sales team to rip and replace salesforce and switch to money.com i don't think that cross sell is as easy as it's set as they make it seem in their slide decks so i have some skepticism that they're going to be able to do that very well honestly here's a question for you will bitcoin's price be above 105 000 by the end of 2025 ibkr forecast trader yes was recently at 14 and no was at 86 with interactive brokers forecast

contracts you can trade on future events like climate change the economy or politics you choose yes or no and if you're right you get paid it's that simple explore trending data spot the trends and make your prediction for december 2025 trade forecast contracts at interactive brokers and earn a dollar for every correct prediction plus you'll earn over three percent api on your investment with an interest-like incentive coupon and you'll get three dollars just for signing up with forecast trader, which you can use for any purpose. Forecast contracts are not suitable for all investors. Go to IBKR.com slash forecast and start predicting today. Last trading day for this contract is December 31st, 2025. Yeah, it makes sense. And I think I agree with you.

It's hard to just rip and replace, you know, hey, oh, we got an equivalent product, but it's like, Well, these other companies not only have the equivalent product, but are generally at a larger scale. Now, maybe with the small and mid-sized customers, like, for example, I'm not sure if Fiscal AI is a customer of Monday.com, but a company in that size maybe would be more, depending on what type of company it is, more adept to, oh, we don't have a CRM solution. Maybe we'll try Monday.com CRM. Oh, we don't have, what is this one that's growing quickly? monday service we don't have a ticketing system for customer support internal tickets we kind of need to build one hey why don't we use money.com because we already use that service but going mainstream yeah it's not going to be the size of salesforce anytime soon now they don't need to be

though right because this is a huge market they're only doing a billion ish in revenue i mean you have the sales forces of the world i think pushing actually don't know maybe 40 billion in revenue You can correct me if I'm wrong. Yeah, something like that. So let's get into the competition, unless you have anything more, on the business. Who, as you analyze this company, analyze the space, who do you think they're competing with?

What are their biggest threats? What do you see as their edge or moat in the industry? Take us through the competitive landscape. Yeah, the 10,000-pound gorilla in the room is Atlassian. Exclude Salesforce. I'm just talking about the core task management. It's Jira, Atlassian. Atlassian does $5.5 billion in revenue,

so five times roughly the size of monday.com. But then, now depending on which product you look at, because obviously there's dev task management, there's CRM competitors, there's ticketing competitors. If you just kind of look across the board, it's a crowded room. So Jira, which is owned by Atlassian, Trello, also owned by Atlassian, Asana, ClickUp, Linear, SmartSheet, HubSpot, which is like a competitor on the CRM side, Airtable, Notion, the list goes on and on. It is a crowded space, but it was the same case 10 years ago.

Task management was super competitive, even when they started. And especially 2016, 2017, all the way through, it's been a competitive space and they've still been able to carve out their own customer base and market share. And from what I understand, certain companies like certain products for different reasons. So it's not like one of these is the catch all that's way better than everything else. it's like if you look up top 10 task management software tools you're going to get endless lists and each one's going to have various pros and cons features designed for specific industries specific size companies but money.com has won customers by i think kind of what we talked about being one of the most intuitive easy to use solutions and allowing it to kind of scale within organizations now it's becoming more of an enterprise sales business like they're really building out their sales team and going after these enterprise customers but the one thing that

i like is that they are in a stronger position now than most of their competitors other than at lesson they have more revenue more money on the balance sheet vc funding i imagine has dried up a bit for these task management tools given how crowded it is it like there was a way i unless it's some ai spin right it's probably not going to be the same as it used to be yeah i mean there was people said that money.com was like a part of the last wave of workflow software vc rounds where from i think probably 2005 to like 2015 this was the craze like software is going to eat the world back every task management platform that you can because it's going to be just make every business's life easier and now it's obviously very very crowded but i think they're going to

be able to press their advantage they've got enough employees to continue to build out the product they can iterate on it with ai enhancements they can build vertical specific tools try to cross sell there's some advantages now that they have weirdly enough being only a six to eight billion dollar company they're one of the bigger ones especially relative to a lot of their privately held competitors so i like where they're at there's no moat per se like i don't think there's this massive moat but there's there are significant switching costs so big advantage there we'll talk about that a little in a little bit but you got to get the customers that's the hard part once you have them they'll stay okay when i sell my business i want the best tax and investment

advice i want to help my kids and i want to give back to the community oh then it's the vacation of a lifetime i wonder if my head of office has a forever setting an ig private wealth advisor creates the clarity you need with plans that harmonize your business your family and your dreams get financial advice that puts you at the center find your advisor at igprivatewealth.com Okay, let's talk financials. I think we're going to get through the valuation. Take us through how you analyze a software company. As I'm looking at some of these charts, it's almost a stereotypical 2019 to 2025 story where very unprofitable, investors get upset. we get to break even slash kind of profitability. And in the last few quarters, it's been stuck on the margin expansion story. Take us through what's happening and how you're analyzing and valuing this type of business. Yeah, I talked a bit about it at the top of the episode, but just to

summarize, money.com has grown revenue very quickly over the last five years and they've improved profit margins as they've scaled. But let's actually go through the whole P&L and just kind of talk through i guess the unit economics so to speak this is last quarter's view last 12 months are a little different but not not too different so 317 million dollars in revenue they spend 36 million of that on cost of revenue so cost of goods sold i assume that's primarily cloud computing costs uh credit card networks payments all those wide moat businesses that sit in the cost of goods sold line for every software company out there so 89 gross margins then they spend 25 of their revenue on research and development 12 on general and administrative

and 52 on sales and marketing so sales and marketing by far the largest operating expense contributor that's what we're looking at for operating leverage that's the number one concern now i guess you're going to get into it but how fast are they growing with all this sales and marketing spend is that's anything that concerned you like all right we're spending half of our revenue on sales and marketing and how fast are they currently growing yeah yeah i'll get into in a sec the only thing worth mentioning there is if you deduct all those all the costs good sold all the operating expenses you get to basically break even minus one percent operating margins although they have 170 sorry 1.7 billion in cash and investments on the balance sheet so they earn

16 million dollars in interest income so their net margins are like four percent so which at the moment is like it's kind of just sitting there which is i'm okay with that i think uh collecting interest and they've said that they've authorized a buyback so it's available now i would have been a they didn't really have any need to authorize a buyback over the last three years four years because the stock was pretty expensive but they've now authorized one the valuation has come down quite a bit so they can use that cash uh if they choose to or they can continue to collect interest on it but that is the operating margins and the net margins have improved drastically so december 2020 negative 94 i mean they were hemorrhaging money today positive six percent positive four

roughly so and it's been just this constant evolution and sort of feels like they're kind of choosing their profit margins or they have been or their burn rate i should say but the bulk of that margin improvement has come from deleveraging in their sales and marketing line all the numbers i just mentioned there they were all gap figures so i include stock-based compensation management typically does not include sbc in their profitability metrics and this is maybe my biggest frustration looking at management is they just seem to own like they obviously know it exists they authorized a share buyback to offset dilution so they know it exists but they they spend get ready for this 14 of their revenue on stock-based compensation that

is really high. Yeah, it's high. Yeah. It's frustrating knowing that not only are the finance teams on these companies smart, they have to be smart, at least smart enough to understand this. It's not rocket science. The executives are smart enough to get a five-minute lecture to understand the basics of shared dilution and how that all can affect your overall stock market, just overall earnings per share trajectory over the long term. And yet they seem to just pretend that either it doesn't exist or that it doesn't matter or that they don't understand like, oh, this is just an adjusted thing. We're going to offset it with dilution.

You're not understanding how this works whatsoever, which can be frustrating because it's either one, they're not actually as smart as they seem, or two, they're purposefully being ignorant of the underlying financial reality of how an income statement works or three the third option there is they think they have a massive market to go after and this is maybe it's a mix of their people right which i think where companies get caught off guard is when they overestimate what they can grow at and all those investments in their people and giving all this equity to their employees. All of a sudden, they thought they were a small organization that was going to be much larger. So give them stock, incentivize the employees. And all of a sudden, that's kind of

grinds to a halt. And it kind of has this backwards effect where all of a sudden, employees, their RSUs are not worth what they thought it would be worth. It's probably a little demoralizing. But there's no question that they spend a lot of money. however as we outlined at the start of the episode they have a much higher capacity to earn today than they had five years ago and much of that is likely because they spent so much like hiring all those employees building out the product evolving it over the years marketing it being the first ones that show up when you look up dev task management software whatever on google the expensive sales team sales commissions those aren't cheap employees building a huge headquarters

in israel it's like these are costs these are real costs but they're probably larger today because of it and that is the whole game with software uh high fixed costs very little marginal costs in theory they could be very profitable if they decided to cut spending the question then becomes how sticky are the customers? Because are you on an expense treadmill where you can't cut expenses because you have to keep improving to serve those customers? If it's really sticky software, then I would argue it's okay for you to slow down spending and you can continue to value them on sort of theoretical earnings. From what I can tell at the enterprise level, this product is very, very sticky. So Brett's sharing a chart here, but

the enterprise net revenue retention rate, and by enterprise, I'm just saying customers that spend more than $50,000 with Monday.com, that customer cohort has a 117% net revenue retention rate, meaning they spend 17% more with Monday.com every year. Now, keep in mind, gross retention if you look at the whole customer base with money.com it's going to be there's going to be some churn because companies go out of business especially small mid-sized businesses and maybe they can't afford software so there's going to be some churn at that level but with the enterprise yes i think it is very very sticky and i said earlier that i don't necessarily buy the whole cross-sell story here but that is referring to those vertical specific products the core platform

i i think really can become like pervasive across different departments so there is kind of not necessarily the cross cell but it spreads within its existing customers and i found a write-up that kind of lays this out well in terms of the stickiness he says monday.com gets increasingly entrenched with growing adoption within their customers due to prohibitively high switching costs around one transitioning data out of monday.com into a new product with its data schema, which often requires high budget consulting teams to execute. Two, rebuilding all of the processes in monday.com from scratch in any replacement product requiring an org-wide rebuilding distraction given adoption across departments. And then three, time-sensitive

change management involved in procuring, implementing, and training an entire employee base on a new alternative product. It's sticky. At the enterprise level, if multiple departments use this i would be i imagine churn is extremely low yeah i agree it's not going to be as sticky as a database management system or just your database but it's definitely got some switching costs just imagine again when anyone any listener or anyone that's trying to envision what switching costs actually mean. Just think if you were the CTO, chief technical officer, or maybe chief COO, I don't know who would be in charge of this. At any company, you have to manage a team of 200 people and you go, let's take money.com, which we've been using for three years, and we're just

going to try to switch to an equivalent product. How many employee hours would need to be spent doing that and the total cost and whether at the end of the day, it's actually going to save you any money. So yeah, that's where the switching costs show up. And that's where the incremental not only cross-sells, but over time, the pricing power shows up. Everyone hates Oracle. That's what they say. It's kind of like the cable companies. People have this reputation, oh, I hate Oracle. But they're able to raise prices all the time. Insurance stays pretty low. the sas companies excuse me are not all the same in this regard but that general switching cost allows you to incrementally raise prices add on new revenue without significant churn as long as

you as money.com has a product that people enjoy and that saves them time yeah the product would have to suck for you to for an enterprise to change task management platforms because like i'm thinking about it with fiscal ai we have a task management platform for the dev team there is so much stored in that it's such a wide system of records so many tasks out there that it would be just an absolute pain to go out and try to switch it might be it's gonna it definitely is different at the smb small mid-sized business level but enterprise which now accounts for, I think, 40% of Monday.com's business and is an ever-growing piece of the pie.

I think this is incredibly sticky. If you regularly listen to Chit Chat Stocks, then we know you love analyzing individual companies. We do too. That is why I, Brett Schaefer, co-host of the show, decided to start writing the Emerging Moats Stock Research Service. Emerging Moats produces regular stock research reports

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okay let's talk ai one is ai why money.com stock is down and two is ai and ai led software a legitimate threat to monday.com's niche so i think this is one of the reasons why monday.com stock is sold off and it genuinely makes no sense to me but brett requested that for my research for this episode i a completely non-technical person try to build a competitor to monday.com using ai now i maybe i use the wrong ai maybe there's better tools for this but here's the problem yeah i think there is others but uh your example here is gonna prove a point. Yeah. Here's the prompt I gave Gemini. Make me a task management software system that resembles money.com. I need it to be able to work across multiple users. I want you to actually

spin up a website for me. Now I'm sure there's devs listening to this that think that is the dumbest prompt they've ever heard. It probably is. The response was that is a fantastic hands-on goal while i am an ai and cannot directly access web hosting services like aws to physically spin a website with custom code i can absolutely guide you to the fastest most powerful way to launch a live multi-user system that mimics the structure and functionality of money.com and it gave this long response that i okay when i sell my business i want the best tax and investment advice i want to help my kids and i want to give back to the community oh then it's the vacation of a lifetime i wonder if my head of office has a forever setting an ig private wealth advisor creates

the clarity you need with plans that harmonize your business your family and your dreams get financial advice that puts you at the center find your advisor at igprivatewealth.com i had no idea what to do with uh because i am non-technical so lucky for monday.com they will not be having a new competitor in the space today uh because i have no clue what to do with that answer however back to the original question i honestly think this narrative that someone can just spin up a monday.com competitor and by someone i mean someone more credible than me like a literal developer can go i'm gonna spin up a money.com competitor right now cto working in a hundred person team yeah yeah so there i mean there's that there's

the building an internal tool which we can talk about in a second but there's also the like new guy wants to start it up new guy on the block type of thing i think that's one of the dumbest things i've ever heard if you've ever worked in software you know that building a capable platform with product just even product parity which would require a lot uh it's like the tip of the iceberg for building a real business uh there's so many edge cases there's endless customization requirements there's integrations with third parties you have to have a lot of these integrations with third parties and to serve enterprise customers you have to have the physical architecture to do it you need to be sock to compliant which apparently is a huge

fiscal had to go through this what is this sock do yeah it's like software compliance standards and like if you're like gap like gap almost auditing like or is it different it's more like if i'm a cto or if i'm working at a big enterprise company i can't even buy software from a vendor that isn't SOC 2 compliant. So almost like getting government clearance, defense department clearance. Something like that, yeah. Which is a lift.

It's a lift to get SOC 2 compliance. It's not as easy as it might sound. And perhaps more than anything else, you actually have to go out and get customers, which is not, I think people think there's this world in software where you build it and they will come. And that is not even anywhere near reality

when it comes to enterprise software. So monday.com releases a new version of its platform every single day. So however fast you think that solo dev is iterating on his task management system, I promise monday.com is doing the same thing. Now, the other question is, does AI make it easier for savvy enterprise customers to build a tool like this in-house? Yeah, it probably does. But again, I think it comes down to focus.

Let's take Canva, for example, who's a big monday.com customer. could they devote some developers to working on building an internal task management platform yes but that's not their core business that wouldn't drive revenue for them it'd be a waste of the developer's time in my opinion it would be a distraction and then they'd have to maintain it and even if they did maintain it it probably still wouldn't be as good as just buying from a provider directly. So yes, they'd save some costs, but then allocating a bunch of devs to it, are you really saving costs? All right, I agree. I agree. Where I talk to people that work at Amazon and they are a large enough business, and I think the big tech companies

are the ones that generally build their own internal tools where they say, oh, we have the Slack, but it's our own internal one, or say we have this software tool that you've heard of, but we built our own internal one. But almost every other company of a decent size is not going to be doing that. For example, the company I work at, The Motley Fool, is pretty large. It's larger than most listeners would think.

And they're using a lot of these enterprise software tools to manage a large globally distributed organization. That would be quite difficult without them. And are they using money.com? No, they're using one of their competitors. But it's a good example of if The Motley Fool, who has probably a very sharp technical team, And they have to have very, very secure systems, given that, you know, you don't want to leak any of their recommendations, all that stuff.

They're not going to spend their time building task management. They'd rather pay someone like Atlassian, whatever it is, $100,000, $200,000, $300,000 a year. Yeah, at the like on the absolute behemoth level company size, it makes sense to build internally because you can develop or you can throw 100 devs at it. And that was true before AI, yeah. Yeah, and maybe it helps them do that a little better, but I still think for the majority of enterprise customers, it makes more sense for them to focus on their own product than to build a task management system themselves in-house that tries to mirror monday.com. Let's talk management and valuation. the valuation stuff is probably the most important i think what people care about the most but management real quickly we talked about them at the top of the episode briefly the company is

led by two co-ceos that were both originally technical meaning they could write code themselves they could and did so so far they've built a great product and they've scaled the business really quickly in a hyper competitive industry and so you kind of have to give them kudos for that and in terms of having an eye for product they pass the test as managers they're also both really large shareholders so there's some incentive alignment there roy man owns 9.8 percent of the company in iran zinman owns 3.6 percent the next largest solo shareholder is the ceo of wix actually avishai abrahami but roy man has uh the sole founder's share uh which gives him special veto power over basically any big decision at the company so

i think even if you got an activist in there ultimately you can apply pressure on executives in a lot of ways and a founder's share doesn't like it's not like he can never be removed or anything like that maybe it maybe it is but if you apply enough pressure that changes can be made is kind of what i've witnessed especially if like everyone at the organization is pissed off about the stock so so far this hasn't been a huge deal this whole founder share thing but it's out there just know roy man has a lot of power here as for compensation since money.com is internationally listed or an international company listing in the U.S., they don't have to have your standard proxy statement. So you don't actually know what the KPI hurdles are to get their bonuses.

But the whole executive team got paid $31 million last year. It's on a $1.2 billion, $1 billion revenue business. 3% of revenue? Yeah, it's pretty sizable. Yeah, it's high. It's not a deal breaker. I was bummed that I didn't actually know what the bonus hurdles were. I was a little upset by that, but I would love for them to publicize that information. And in general, I like what they've done. I think they've built a really good business, but I think we're about to find out what kind of leaders they actually are because the stock is down 64%. They're trading at their cheapest multiples, cheapest multiple ever, basically. Investors are losing faith in the company and you can feel the pressure on them in some

of the conference calls. And this, you really saw it. If you go read the last conference call, it starts off with some analyst throwing out a softball question about some new product and how it's going to improve their TAM. And the CEO is like, well, first, I just wanted to say, I just want to congratulate you on your retirement to the analyst, like they're best buddies. And it's a few great questions and talking about the product and how innovative it is. And then an analyst that really cares is like, why is growth slowing?

why aren't you raising guidance? This is the first time in your history you haven't raised revenue guidance. And all of a sudden you started to see, I think, more cracks in the answers. And for a long time, I feel like they followed basically the classic tech CEO playbook, which is you hire out the operational and financial roles, and you just focus on building the best product. In my experience as an investor, seeing a lot of IPOs like that over the last five years, especially coming out of that COVID period, those situations rarely last. The CEO is not the CTO. And having founders be the CEO when all they want to do is build cool tech just doesn't work. It works when times are good, but then shareholders are calling to get rid of them

when times are bad. And they typically end up taking some other role when the stock plummets. sam rush just had this like our ceo is moving on to executive chairman and here comes in this operational guy and either you move to a more technical role or you evolve as a ceo a good example of someone who went from technical to well-evolved ceo is mark zuckerberg like he was obviously technical in the early days anyone that's watched that movie knows but he's evolved he has his hands on pretty much the whole business i doubt he's writing code these days uh but there are there are examples of technical founders that have evolved well i think another good example of someone who maybe succumbed to the pressure a bit was toby lookkey of shopify

who builds a great business stock dropped 60 in may of 2023 he steps into the executive chairman role lets someone else take the pressure i think 80 i think it's i think it might have dropped 80 percent. But either way, he was almost forced, not unwillingly, but it didn't seem like he was very excited about not doing his crypto projects anymore. One thing I note is that even the hurdle for being decent at capital allocation, spending discipline, capital returns, the like, is not that high for companies of these qualities, these high gross margins. Because you look at Facebook or meta and you look at its capital return strategy over the last five years it's it's pretty horrendous in hindsight given their timing of their buybacks and at the same time money if money.com did

something like that that would be a big improvement for what they're doing right now yeah it's there there's kind of some give and take and it's it's frustrating sometimes looking at management teams that have these technical founders that are so like avid about the product, spend, spend, spend. Like we've got a huge TAM, we can expand it, we can do all this. But at the same time,

you wouldn't have this organization without them. So they have built a great business and it's not like I'm calling for them to resign or anything like that. But I see it a lot where you get this mounting pressure from shareholders and all of a sudden, And the guy who just wanted to build a cool business, build cool technology, doesn't really like what he's doing anymore and decides to step into a new role. Maybe they continue to have their stake.

They're not selling it necessarily, but they just don't want the pressure. I could see that end up being the case. Or maybe this co-CEO structure works out and they come out of this even better. We'll see. Let's talk valuation, though. money.com has a market cap of 8.2 billion dollars right now this is actually why i wanted to do the episode was it was trading at its lowest valuation ever they've got 1.3 1.4 billion dollars in net cash kind of depends how you define it but enterprise value roughly is actually 6.8 billion

as of this recording so 6.8 billion that puts them at an enterprise value to free cash flow multiple trailing of 19 times, which is, like I said, near their lowest multiple ever. Free cash flow is kind of a BS metric for them right now because they've got all that stock-based compensation. So don't just take that at face value. We got to actually do a little bit of modeling here that I love when companies basically force me to do modeling because they have this huge SBC line, but management is targeting $1.8 billion in revenue for 2027.

For 2025, right now, we're looking at just under 1.3. So they're basically guiding for just over 20% annual revenue growth. They are targeting 20% to 25% long-term non-GAAP operating margins. I don't know what long-term means. I think that kind of resonates with the 2027, 2028 years. So we got to do some guesswork on what their actual operating margin, or more so what I'm looking at is free cashflow minus stock-based compensation margins. And I think I've gotten to some comfortable figures here.

I could be off, probably will be off, but I'll go through some of my assumptions. Basically, if they hit those growth figures that they estimated, I think stock-based compensation as a percentage of revenue will moderate from 14% currently to around 10%. I hope even lower in the long run, but that's my assumption for 2027. And I believe free cash flow margins can go from the current 26% to around 30, more than 30%. I don't see any reason why they can't get to 40% free cash flow margins in the long run if they keep hitting these revenue growth estimates. So I don't want to bore people with numbers, but basically I assume here that it's 21% revenue growth this next year, 20%, and then it kind of moderates. So I think I've explained this before. Anyone who's new, what I try to do is I'm just trying to find how much will this company have in real earnings five years from now.

So I basically temper revenue growth estimates from 21% down to 15% by 2030. Obviously, once you kind of get two, three years out, it's hard to really guess what revenue growth is going to look like. You don't know what products they're going to launch or anything like that. And then I expect that free cash flow margin by 2030 is 33%. SBC is a percentage of revenue, 7%. percent that gets free cash flow minus sbc margin that figure that i'm looking for to i believe it's 26 but even whatever give or take the ending numbers that i end up with here are 2.6 billion

2.7 billion in revenue in 2030 versus so basically a double from today and 692 million dollars in free cash flow minus stock-based comp at today's enterprise value it's trading at 9.8 times my estimate of 2030 earnings so it's not as cheap as people might think i've said this before but basically what i want is i want the stock to trade at less than 10 times my estimate of five year out earnings and this just barely makes the cutoff like as close as it can be so i'll leave it there what do you think of my valuation numbers i know i threw a lot of listeners there okay when i sell my business i want the best tax and investment advice i want to help my kids and i want to give back to the community oh then it's the vacation of a lifetime

i wonder if my head of office has a forever setting an ig private wealth advisor creates the clarity you need with plans that harmonize your business your family and your dreams Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. I think it makes general sense. Yeah. You have, the margin is attainable, especially with those SBC figures. I think the revenue growth figure, given that they're not that big, feels quite reasonable.

And they've executed really, really phenomenally with their growth over the last five years. I would expect that to continue. I see no reason for that to slow down. Looking at that valuation, the one thing I noticed, okay, maybe 10 times 20, 30 earnings right now. Probably do decent if these assumptions work out. But I would tell management, if you optimize your SBC and the buyback,

the stock will be twice as high in 2030. So anyone listening to this, just have that in mind. Would you like your shares to be twice as valuable by 2030 or not? And maybe just work back to how you can get there with this SPC dilution versus the cash on the balance sheet, the buyback, and all the cash flow coming in each year from, as Ryan mentioned, a subscription, well, maybe not all subscription, but a recurring revenue software business with minimal churn, high switching costs, and high net revenue retention. i think we all want the stock price to be higher if you're a shareholder and that's my little rant

to end things now we're gonna end ryan with whether you're buying shares how are you is this watch list sell buy start a position what's going on with money.com stock in your own portfolio so as i mentioned this does barely meet my cutoff and i i did not work back from that figure just to be clear i i got to my guess of what earnings could be and then i saw what is it as a percentage of today's current enterprise value and it was right where i want it to be well sorry right below what i find acceptable i think i'm going to take a starter position it is not crazy cheap here people you like what happens with the sbc line is very important here that's going to make probably one of the biggest differences obviously besides kind of top line growth so i really like

the product they seem to do like i think some people just picture every sass company looks like money.com which there is a lot of a lot of sass companies do look similar but look at asana and look at monday.com's revenue trajectories money.com is winning market share in this industry and i think a lot of it comes down to just having a very intuitive uh customizable So I think the business could surprise to the upsize in terms of new customer adoption. Management does kind of piss me off, I'll be honest. The SBC stuff gets to me. It's frustrating. But if they keep generating more than a 110% dollar-based net revenue retention rate across their entire customer base, I can just deal with it. Like, it's hard for me to imagine the business not doing well when they're growing 10% to 15% from their existing customers. So I'll end it there. I like it.

Going to take a starter position. the things i'm watching are stock-based comp management commentary about it and are they basically what's adoption look like across the other products i want high net revenue retention rate low sbc has percentage of revenue those are like the two metrics i would like all right let's close things out here i'll hit the disclosure and we can get out of here we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you everyone for tuning in. Hope you

understand the money.com business today, and we'll see you next time. We'll be right back.