My Zoom thesis is the same as my Monday.com and Asana thesis and it’s a very simple thesis – work-from-home is here to stay. Perhaps centrally located workers will go back into the office, yet teams are used to working remote and as long as a percentage of the office is hybrid or remote, then productivity software will need to be implemented company wide.
We’ve covered this from different angles but our most recent trend update is found here where we said in November:
“One of the main reasons we want to continue holding Zoom is that hybrid work-from-home is an important trend for our portfolio. Asana’s growth is participating in this trend and Monday.com is also participating in the productivity tools category with work-from-home tailwinds. When we were down 40% in Asana, the portfolio manager Knox asked about my conviction and I said “we need to have more than Zoom for work-from-home – productivity tools will be winners this year.” The chances this trend wouldn’t carry Asana was low. Now, I’m reiterating “we don’t want to give up on the leader in work-from-home because the trend is not done yet.” On a side note, we will likely revisit Asana OR we will look at Monday.com if these companies get into a buy zone.
According to Gartner, 51% of knowledge workers will be working remotely by the end of 2021 up from 27% of knowledge workers in 2019. Looking forward, Gartner expects that 31% of all workers in the global workforce will be a mix of remote and hybrid with the United States at 53% of its workforce – in other words, not only knowledge workers. The senior research director who worked on the report stated, “Through 2024, organizations will be forced to bring forward digital business transformation plans by at least five years. Those plans will have to adapt to a post-COVID-19 world that involves permanently higher adoption of remote work and digital touchpoints.”
This part regarding the expansion of work-from-home was updated with new percentages in August:
“Regarding productivity tools, Gartner reports 80% of workers are using collaboration tools for work, up from roughly half in 2019.
Here’s the main statistic we think adds to our bull case: “Specifically, the use of meeting solutions surged during the pandemic. While workers globally reported that they spent, on average, 63% of their meeting time in-person in 2019, that number dropped to 33% by 2021 as more meetings took place over audio and video-enabled meeting solutions. The shift away from in-person meetings is expected to continue. Gartner predicts that by 2024, in-person meetings will drop from 60% of enterprise meetings to 25%, driven by remote work and changing workforce demographics.”
In all instances, we are seeing higher penetration over the next few years. Productivity tools or Work Management tools (synonymous) are a safer bet than most during times of inflation because these companies drive down costs while increasing productivity. We see Monday.com and Asana counting enterprise accounts in the >$50,000 range. That means one employee located outside the Bay Area or Manhattan (or other tech hubs) can absorb the entire cost of a productivity suite for most companies if we figure a Bay Area employee goes for $150,000 in tech where they normally go for $100,000 in tech. This is a very common spread to see between salaries and locations due to cost of living. Some companies have their entire work force remote, such as Shopify or Gitlab, while others are global teams with a need to bridge productivity.
Bradley covered remote outsourcing company Grid Dynamics here which you could see become a moonshot ($2.5 billion market cap) when the technicals are ready (timing). This report highlights a particular company that offers outsourcing for technical labor including big data and analytics, AI/machine learning and cloud computing. The company’s clients are United States based yet 90% of the talent is global. The competitive salaries outside of tech hubs helps to cover the costs from companies like Asana and Monday.com. Even if you’re not interested in a small cap company, it’s worth a read as it broadens the discussion around work-from-home increasing in penetration from a different yet complimentary angle.
Here's a quote from Asana on ROI: “The Asana Work Graph is uniquely architected to give organizations cross functional capabilities that deliver measurable business value and according to IDC, an estimated 225% ROI in the first year.”
MNDY vs ASAN: Top Line Vs Enterprise
I’ve seen a few comparisons between these companies floating around but I want to get to the core of the matter as to why our position is split rather than fully concentrated in one company.
Retail has decided Monday.com is the winner and institutions are certainly favoring Asana with ownership 9:1 (Asana). Some of the low institutional ownership in MNDY could be the lock-up recently expired and institutions will enter over 1-2 earnings reports assuming insiders have had the opportunity to sell.
I liked Asana last year because the management was low risk and the product is quite good, whereas Monday’s location in Israel introduces a small element of risk. We cover Israeli Shekel FX below.
Monday blew the doors off with the >$50,000 account growth. This key metric may be the stand-out key metricthe stand-out key metric from the earnings season from any/all companies. We certainly know where Monday.com is spending its cash, which is sales and marketing, to make sure they leave no stone unturned in claiming ground.
You’ll see Bradley discuss below why the >$50,000 account growth does not tell the full story, primarily that Asana attracts higher value customers. For example, Asana has one customer nearing 1% of revenue in spend, so roughly $3 million. This account counts as one of these >$50,000 customers despite equaling 60 of these accounts (if we figure $50K in spend) or 30 of the accounts if you figure $100K in spend.
Therefore, the stand-out key metric was certainly impressive on MNDY but we are not ready to name a winner. Right now, Asana is the enterprise leader and institutions prefer this more than top line growth because generally speaking it’s more sustainable long-term due to upgrades. We also note below that the earnings call from Asana was stronger in terms of larger enterprise accounts, which I highlight below.
Monday.com and Asana: Key Metrics Overview
Monday.com grew enterprise customers to 185 in the third quarter, up 231%, an acceleration from 226% last quarter. Monday.com has increased enterprise customers from the 140-185 range a year ago to 630. This puts the company on Asana’s heels with 739 enterprise customers and 132% growth. Monday.com’s full year revenue is at $300 million compared to Asana’s estimates of $372 million.
Workdocs is a newer product that Monday.com introduced. If you’re a power user of Google Docs or something similar than it’s easy to visualize the pain point that Monday is solving for, which is that cloud docs should be integrated directly into the productivity software. These docs can be updated in real-time when data sources change.
Marketplace is certainly not new yet evolves frequently as new apps are added, including apps like Typeform for customer data, embedded social media for marketing teams, whiteboards and integrations with Zoom and Airtable. The goal is to build a diverse marketplace so teams don’t need to leave the platform for an individual app. Where Monday.com excels is the branding and advertisements. The company’s Work OS is very catchy and clearly communicates the vision. The company’s advertising strategy is critical to its growth and this was mentioned on the call:
“As a follow-up, I was chuckling because I saw another monday.com ad on my browser when I logged in this morning, to listen to the call. And I click every time I see one of your ads. I — a couple times a week. I think these advertising campaigns are brilliant. And they're fantastic if you had one that did have the gorilla or Bigfoot or something like that, they're super creative.”
The question was in regards to IDFA which Monday said they should do just fine as they have more of a contextual ad strategy. But this bears pointing out that Monday spends 81.2% of its revenue on S&M compared to Asana 75%. With that said, Monday spends less on R&D at 24% of revenue compared to Asana at 54%. During a major expansion phase, the market can be forgiving of expenses because the point is growth-at-all-cost so upgrades can offset losses. The point is getting customers in the door and then proving your upmarket strategy is strong.
Here's what management said:
“As a reminder, one more thing that because we generate such a huge capital efficiency of [indiscernible], if you think about every dollar that we burn since inception, is — we're getting like $3 in terms of pay [indiscernible] definitely for us, it would be stupid not to continue to invest.”
A paramount discussion on Monday.com is the Israeli shekel exchange rate. Due to Monday.com being headquartered in Israel, they have to take into account potentially hedging any fluctuations. Bradley goes more into this below including cash balances and debt in his section after I review Asana.
*Should* we see Asana inch past Monday.com on gains despite lower growth, I think uncertainty on FX could be one reason. With that said, management was upbeat about the question:
“Obviously, this year we took the dollar rate 3.2 and now the shekel at 3.1. But we are trying to proactively edge against it. We don't see seeing a big issue due to the cost breakdown. However, this is something that we are very much focused on with regards to today's value shekel though are. On the revenue side, most of our revenue is collected in the U.S dollar and a small portion is in Euro and British pound. So we are also looking at edging strategies to make sure that we're also protecting our top line where possible.”
Regarding the Israeli shekel, what to watch for here is whether institutional ownership grows and/or if this question keeps coming up on the call. Bradley discusses this more below.
Asana
A few things stand out about Asana. The first is the transparency on number of users rather than segments of users. The company has 2 million paying users now and paid customers of 114,000. What we got from MNDY is that 40,000 accounts are using Workdocs so a bit unclear on overall number. Most importantly, Asana’s 5K+ customer base is 68% of revenue and growing 96%.
The enterprise segment of >$50,000 represented the highest growth segment in the quarter at 132%, with the second tier at >$5,000 up 58% year-over-year, and overall customer growth up 28% year-over-year. The company also broke out net retention rate for each segment with 145% NRR in the enterprise segment, 130% in the second tier and 120% overall customers.
Here was the more direct question on the call regarding Asana’s financials:
“Tim, just curious kind of underneath the surface, there’s a lot of surface level metrics decelerating revenue, RPO and billings down, realizing you have tough comps, but I think many are asking.”
Management’s response was this:
“And then over time, the marginal cost or the marginal cost to have them increase or grow becomes less, because based on our net expansion rate, for both our 5K and our 50K, you see that they’ve improved to pre-pandemic levels now, 130% on the 5K and above, and then over 145K on the 50k and above.
But your question is really about the billings and RPO, and I think, we’ve said, because a third of our base is still on monthly that billings isn’t the best indicator for how we grow our business over time.
And I’ll just add, I think that, part of your question is, is that a harbinger of doom or something like that, and so I’ll just reiterate, we’re really excited about the enterprise momentum and we raised guidance for next quarter by $12 million.”
Comparing recent financials
By Bradley Cipriano
Monday.com and Asana have very similar financial metrics, but there are slight differences. Monday has more cash and relatively higher rates of deferred revenue, which positions it better for a near term acceleration in sales growth. However, Asana is investing in its future with higher rates in research and development (R&D) expense and has larger enterprise deals, suggesting that Asana may be prioritizing long-term growth over short term revenue acceleration. I discuss these trends in more detail below.
Starting with the income statement, Monday is growing faster than Asana and has higher earnings. For instance, Monday’s Q3 sales increased 95% YoY to $83 million, which was an acceleration, while Asana’s Q3 sales grew 70% YoY to $100 million, which was a deacceleration. Furthermore, Monday has exhibited greater leverage as its quarterly gross profit increased $11 million QoQ while its operating expenses (opex) grew $13 million sequentially. This compares favorably to Asana, which also saw its gross profit increase $11 million QoQ but its opex grew by $19 million on a sequential basis.
The discrepancy in opex growth was mainly driven by R&D expense, as Asana’s R&D margin was 54%, or more than double Monday’s 24% R&D margin. Furthermore, Monday is spending more on sales and marketing (S&M) expense, as its S&M margin was 81% vs 73% at Asana. In short, Monday’s topline is growing faster but it is spending more on marketing, while Asana’s losses are larger but it is investing more in research and development. Investments in R&D position Asana well for long-term growth while investments in S&M position Monday well for near term growth.
On top of exhibiting faster growth and higher earnings, Monday also reported positive free cashflow (FCF) during Q3, as quarterly FCF increased to $1 million. This compares favorably to Asana, as its three-month FCF was an outflow of -$29 million. On its Q3 call, Monday’s Co-CEO Eliran Glazer explained that the positive cashflows were driven by efficient collections, but that the company does not target to be cash flow positive in the near future or to generate cash.
It is important to note that quarterly cashflows can be lumpy and on a TTM basis, Monday and Asana reported that FCF was an outflow of -$108 million and -$107 million, respectively, after accounting for stock-based compensation (companies can increase FCF by increasing SBC, so excluding SBC improves the presentation of true FCF). In short, both companies cashflow performances were relatively the same over the last twelve months.
Another key metric for both companies is deferred revenues, since around 70% of customer pay upfront for their subscriptions for both companies. Monday’s deferred revenue was 141% of three-month sales while Asana’s was 154% of three-month sales. Higher rates of deferred revenue suggests that customers are paying more cash upfront, a sign of strength. Furthermore, as the name implies, deferred revenue turns into sales in the future, which provides more support for future sales growth. However, we also must consider customers that pay arrears by subtracting accounts receivables from deferred revenue (net DR). Monday’s net DR balance was 133% of three-month sales while Asana’s was 108%, signaling that Monday has received relatively more cash for its sales than Asana has. This trend positions Monday relatively better for a near term acceleration in revenue since the company has relatively higher rates of upfront customer cash payments, which effectively locks in future revenue.
Monday also has more cash on balance with $876 million in cash following its recent IPO and no debt. This compares favorably to Asana, which has $343 million of cash and over $240 million in long-term debt (mostly lease liabilities). It is favorable that Monday has relatively more upfront cash payments in deferred revenue and a larger net cash position, which gives it ample liquidity to scale going forward.
However, as Beth mentioned above, Asana does appear to be outperforming Monday with enterprise customers. While Monday’s >$50,000 growth was more robust than Asana’s, Asana has larger customers. Specifically, on its Q3 call, Asana’s COO Anne Raimondi stated that the company was closing seven and eight figure deals. She explained that: “In fact, it’s worth mentioning with a tremendous momentum in the enterprise over the last few quarters, we’ve been closing seven and eight figure deals and we’re still early”. Monday is not closing similar sized deals, as its Co-CEO Roy Mann stated on the Q3 call that “We are approaching seven figures transactions”, implying that the company has not yet booked a seven figure contract.
Lastly, another minor difference, that could prove to be a significant one in the long run, is the different headquarters of each company. Monday is based in Israel and around half of its expenses are in the Israeli shekel. The shekel has appreciated strongly relative to the dollar in recent months. This is unfavorable, since the majority of Monday’s revenues are in dollars but half of its expenses are in the shekel. As the shekel appreciates to the dollar, it makes it relatively more expensive to pay salaries in the shekel, which lowers shareholder returns. This compares unfavorably to Asana, which is based in the US and is not exposed to significant FX headwinds. If the shekel continues to appreciate, Monday’s earnings will weaken and will be lower quality relative to Asana’s. However, the reverse is also true, if the shekel depreciates relative to the dollar, then Monday’s expenses will be lower which will improve shareholder returns.
In summary, both companies have very similar metrics but there are slight differences between the two. Monday has reported strong topline growth, which may be due to its higher investments in marketing, while Asana has lower earnings which were driven by its larger investments in research and development. This trend positions Monday well for a near term acceleration in growth but Asana may be positioned better for long-term growth. Monday also has more liquidity and higher rates of net deferred revenue, which positions the company well to scale in the near term.
In the near term, Monday may be best positioned to accelerate growth due to its higher deferred revenue and cash balances, but Asana has been stronger with larger enterprise customers and is investing more in long-term growth. We will likely hold both companies until there is more evidence of who the clear leader is going forward. The upcoming release of Q4 results coupled with the 10K (20F) from both companies should shed more light on who is outperforming.