Despite the geopolitical risks monday.com is still a better buy than Asana

The recent geopolitical crisis in the Middle East has negatively affected a lot of high-quality companies that are based there. Tech names like Global-e Online ($GLBE), Wix ($WIX), and others are based in Israel, and the recent crisis in the country has sent their stocks tumbling.

One of the companies affected is monday.com ($MNDY), the cloud-based collaborations firm. As an Israel-based firm, monday’s stock has fallen 17% since the terrorist attack in the country on October 6.

Despite the geopolitical challenges, it’s unlikely that Monday’s performance will be severely affected as the company generates only 6% of its revenue from the Middle East. Its top and bottom line performance is too strong to ignore, and even in the current environment, MNDY is a better buy than Asana ($ASAN), its San Francisco-based rival. Here’s why.

Emerging As The Leader In The Competitive Cloud Based Collaboration Space

monday.com has been one of the most successful companies in recent years. Founded just over a decade ago, this company has not only disrupted the world of workflow management but has also managed to outgrow more established competitors like Asana.

What sets MNDY apart from the crowd is its relentless focus on innovation. The company's journey began with a mission to simplify the way businesses manage their work processes. And it has achieved this by providing an intuitive and customizable platform that is as easy to use as it is versatile.

One of monday’s defining features is its adaptability. It caters to a wide array of industries, from creative agencies and marketing firms to tech startups and construction companies. The platform allows users to create custom workflows, making it suitable for everything from project management and task tracking to sales pipelines and recruitment processes. This adaptability has been a key driver in its ascent to the top.

While the tech industry is teeming with software solutions, MNDY manages to stand out with its unique visual approach. The platform uses customizable boards to help teams visualize their work and project processes. This visual clarity not only simplifies work but also promotes transparency and real-time collaboration among team members. It's no wonder this platform has become a favorite among many businesses. As of December 2022, monday had over 186K total customers while Asana had over 139K. 

monday.com shines in its ability to automate repetitive tasks, ultimately saving time and reducing human errors. Also, it integrates seamlessly with numerous other tools, creating a one-stop-shop for work management. They have even created an app store where customers can download apps, created exclusively for monday, to further customize the platform. They currently have over 300 marketplace apps, 136 of which are revenue-generating.

monday’s fully customizable platform is a competitive advantage that has allowed the company to gain market share and outgrow more established competitors. Asana, while customizable, has a more structured approach to task management, making monday’s platform more advantageous for businesses with unique requirements.

Now, monday.com is not only a bigger company than Asana, but it continues to grow faster, in a clear sign that its differentiated platform resonates more with customers.

Outperforming Asana On Every Single Metric

Monday has made impressive financial progress over the past two years. When it went public in the summer of 2021, its twelve-trailing month revenue was lower than Asana’s, and the company was bleeding cash. It was spending over 100% of its revenue on sales and marketing, which is insane, but it was part of its strategy to rapidly gain market share and position itself as a leader in the space.

Fast forward to today, and monday’s aggressive growth strategy has paid off. The company has outgrown one of its main direct competitors and continues to grow faster and more efficiently. In Q2, its revenue jumped 42% y/y to $175.7 million. While Asana’s fiscal second quarter ends on July 31, instead of June 30 for Monday, and we can’t make direct quarterly comparisons, Asana’s revenue grew by only 20% y/y to $162.5 million, a much slower growth rate. monday’s faster growth rate from a higher revenue base suggests that the company continues to rapidly gain market share, despite the stiff competition. This is a sign that it has a more attractive offering than competitors and a more effective growth strategy.

The strong and high net retention rates of monday.com probably confirm that its platform delivers more value to customers than Asana. In Q2, MNDY’s NRR came in at 110% while the total NRR of Asana was 105%.

MNDY is not only growing faster but more efficiently as well. In Q2, its net margin came in at -4% while Asana’s net margin was -43%. Asana is spending more aggressively on sales and marketing, delivering slower growth than MNDY. There are many possible explanations for this. Asana is based in SF while MNDY is based in Israel, meaning that it has access to lower-cost employees, which gives Monday a cost advantage. Beyond labor cost, monday’s platform may be better optimized for upsells and cross-sells, which could explain the higher NRR, resulting in more efficient growth. And finally, potential customers may not find Asana attractive enough amid a highly competitive market, forcing the company to spend more money on customer acquisition than monday.

While both companies have roughly the same size, monday’s efficient growth has helped it deliver much higher cash flows than Asana. In Q2, MNDY’s cash from operations came in at $47 million, while Asana’s Q2 cash flow was just $20 million. Given that cash flow growth is what ultimately determines a company’s valuation, Monday deserves to trade at a significant premium to Asana as it’s growing very rapidly and is much more profitable.

What About Valuation

As you can see below, the market proves once again that it’s an efficient machine. Even after the recent 17% decline in its stock price, monday trades at a significant premium to Asana, due to its stellar top and bottom line performance. At current prices of $132 per share, MNDY trades at a PS ratio of 10.3, while Asana trades at a sales multiple of just 6.6x.

Despite its premium valuation, MNDY is still a more attractive holding than Asana given its growing leadership in the cloud collaboration space and its impressive progress toward profitability.

What Else

monday.com’s recent selloff has created a very attractive entry point for one of the most successful tech companies of the past decade. The geopolitical crisis in the Middle East is not going to significantly affect its operations given that more than half of its revenue comes from the US, and only 6% is generated in the Middle East.

Its premium valuation compared to Asana, its closest publicly listed competitor, is justified given its superior top and bottom line performance and its cost advantage. The competition in the cloud collaboration space will likely increase in the future, but MNDY is well-positioned to win.

I’m long MNDY.

The boring Disclosures: Newsletters express the opinion of the authors. Nothing in this email is a buy or sell recommendation. I'm not a financial advisor; make your own decisions.