Customers are paying more, and cash flow is rising fast.
Shares of work management software company Monday.com (MNDY 19.70%) soared higher on Wednesday after the Israeli company reported financial results for the first quarter of 2024. As of 9:45 a.m. ET, Monday.com stock was up 22%.
Higher prices lead to higher cash flow
In Q1, Monday.com reported revenue of $217 million, up an impressive 34% year over year and ahead of the high end of management’s revenue guidance of $211 million. And its Q1 outperformance motivated management to increase its full-year guidance. Previously, it had expected full-year revenue of $932 million at most. Now, it expects full-year revenue of $942 million at least.
Monday.com raised its prices for existing customers for the first time during Q1, helping drive top-line growth. Management always expected the price increase to push revenue higher. However, its customer retention rates have been higher than expected. In other words, customers aren’t pushing back against the higher prices and are staying on the platform. That’s a really encouraging development for investors.
With more revenue from existing customers, Monday.com’s free cash flow is soaring. It had $90 million in Q1 compared with $39 million in the prior-year period. And for the year, management expects a free-cash-flow margin of about 25%, which is quite impressive and part of the reason investors are pleased with this stock today.
A strong business and a decent stock price
For the year, Monday.com expects to grow by about 30%, and it expects around $240 million in free cash flow. This means the stock trades at roughly 40 times this year’s expected cash flow. That’s not a bad valuation, considering it’s growing revenue as fast as it is.
Moreover, Monday.com’s customers’ limited pushback on the higher prices is a good sign for the business’s health. It suggests that the software is valuable to the company’s customers, something I’d be quite encouraged by if I were a shareholder.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monday.com. The Motley Fool has a disclosure policy.