Custom application development, which is complex and costly by nature for companies, has failed to produce expected results many a time. Getting hold of good technical talent, integration with legacy systems and responsiveness towards development are some of the challenges faced by companies.
Addressing such issues, a new type of technology called low-code or no-code has turned triumphant. Monday.com Ltd. (NASDAQ:MNDY) can be considered an established player in this technology.
The programming under low-code or no-code uses drag-and-drop and simple commands. Specifically, one needs to be skilled in setting up workflows and testing rather than be a technical expert, to build applications. Therefore, monday.com combines custom programming and off-the-shelf software through its technology.
Notably, the Work OS is the center of monday.com’s technology. Through this, the company creates interactive dashboards using various components and integrations, along with a built-in database and dynamic widgets. (See monday.com stock chart on TipRanks)
With the belief that monday.com offers a next-generation no-code software platform and is fairly valued at current levels, Jefferies analyst Brent Thill initiated coverage of the stock with a Hold rating and a price target of $240, which implies 3.2% upside potential.
Though the analyst views revenue growth of 106% in FY20 as positive with the conservative guidance of CAGR of 45% through FY23, he expects rising sales and marketing investments and R&D expenses to push profitability beyond FY25.
Thill believes that with its exposure to a large end-market, the company has seen a spur in demand of its platform from enterprise customers. Notably, “since the addition of a separate sales team in late 2018, the number of customers with $50K+ ARR has grown from 9 in 1Q19 to 355 in 1Q21.”
Execution of corporate work in a modernized way due to the pandemic has aided incremental demand for platforms of companies such as monday.com. The analyst finds that the easy use of monday.com’s platform has generated decent web traffic trends compared to Asana and Smartsheet, its competitors. Notably, page views of monday.com’s main website have seen a rising curve since the end of 2019 and also exceeded those of either of its two competitors.
However, Thill remains skeptical about monday.com as the start-up company is mainly focused on top-line growth rather than profitability. Based on planned investments of the company, the analyst estimates operating margins to fall to a negative 60% in FY21. Though he expects things to improve next year, profitability remains questionable until FY25.
Furthermore, the analyst questions whether monday.com can differentiate itself sufficiently in the collaboration and work management software market, as the company entered late in the market compared to its peers.
Due to the lack of detailed quarterly disclosures by the company, other than some ARR (accounting rate of return) metrics provided for the last two quarters and corresponding year-ago quarters, the 5-star analyst provides conservative guidance.
Looking forward, the analyst estimates sequential revenue growth of 5%, 6%, and 9% for the next three consecutive quarters, following historical growth of 14-20% in the last 5 quarters, including 18% in the first quarter.
Overall, the analyst considers the company to have potential in the existing market, given its level of user-friendliness. He cites customers’ comments that monday.com works “like magic,” and is “a game changer,” based on its flexibility and ease of use.
On TipRanks, monday.com has an analyst rating consensus of Strong Buy, based on 8 Buy and 2 Hold ratings. The average monday.com price target is $263.33, representing a possible 12-month upside of 13.3%.
TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on monday.com, with 906.5% of investors maintaining portfolios on TipRanks increasing their exposure to MNDY stock over the past 30 days.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your analysis before making any investment.
