Monday is a SaaS company automating workflows. Teams use it to plan tasks, reports, communicate around them with the software being part of operations at more than 250k companies.
The interesting part? Monday has 1.6 billion in cash against a 3.5 billion market cap. The business is also profitable generating a net income of roughly $330 million annualised. When you take into account it’s cash, the business is trading for roughly 6x FCF.
Monday’s enterprise value has in fact gotten so cheap, management already bought back 170m worth of stock and is planning on buying up to 870 million. Potential private equity acquirers are also circling with the CEO recently saying on a podcast they’d rather not be acquired.
Its next catalyst is upcoming on May 11th with its earnings report and if it’s anything like NOW, they will also likely deliver a triple beat although short term market reaction as at the moment still unknown as we’ve seen with NOW while in an extreme fear market scenario.
So why did it come to this for Monday?
Markets are pricing in a high risk of disruption from AI. Vibe coding, which allows SMBs to build their own workflow replacements, are seen as a threat to the pricing power of SaaS and have destroyed the premium these businesses commanded previously for their predictable revenue.
Private credit market risk, like what’ve seen at Blue Owl and other companies in the financing field, are also not making any good signs with their exposure to SaaS tech being aggressively punished and vice versa.
Markets also assume competition will rise and margins will slow as that happens.
My thesis is world class founders that have been able to build SaaS unicorns are an elite class that have taken advantage of various tech repeatedly and they will utilize AI to build better products and make their businesses more efficient. Data their companies have as well as brand, sales and marketing channels will also give them an unfair advantage to build better products and increase their share of wallet faster.
That’s why I invested 2 million in SaaS last week.
Now, why is over a 1/4 of this allocated to Monday?
The business has a diversified pie of clients, 35% of which are SMBs, 1/3 midsize and 1/3 enterprise accounts. Management has recently said they want to work with larger clients and move upmarket, that is the result of the start of this work which was previously more focused on SMBs.
Corporate and enterprise clients generate a more predictable revenue and earnings framework with less retention.
As the godfather of SaaS Jason Lemkin would tell you, one of the main characteristics of elite SaaS companies is negative churn. That is customers are paying more every month on average to the company instead of slipping out. This is exactly what Monday has with clients spending 10% more per quarter with the company.
We can then remember the words of Travis Kalanick of Uber who previously said when he saw that users who complained the most about Uber actually used it the most, he knew he had something. A quick browse of Reddit or online would show you Monday clients both argue about the product and then casually drop they use it daily. That’s a sign to me.
Their product suite is also getting improved by AI already, and you can actually now greatly customize and personalize Monday’s platform within itself using its AI agents. So even in a vibe coding scenario it ends up being quicker to build with Monday.
Now, I am not delusional enough to think this stock could reach its 8x ATH, those premiums on SASS are likely gone for good, however it is highly probable, in my mind, this reaches 10-12x FCF, especially with buybacks, making it a 2x target from current levels.
That’s why I purchased $600k shares of Monday.
Thoughts?