monday.com IPO: Zoom & Salesforce Invest $150M

Monday.com Files Updated IPO Documents

The team management software provider, Monday.com, has recently submitted a new initial public offering (IPO) filing. This latest document, designated as an F-1/A, is due to the company’s incorporation in Israel. It details potential final pre-IPO pricing and outlines planned investments from both Zoom and Salesforce following the completion of the public offering.

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IPO Valuation and Price Range

Monday.com is targeting a share price between $125 and $140. This valuation places the company’s worth at over $6 billion, based on the upper limit of its projected range. This represents a significant increase compared to its last private valuation, which was established in the middle of 2019.

We will now examine the IPO valuation range in detail. We will also discuss the private placements anticipated from Zoom and Salesforce, and analyze the implications of Monday.com’s IPO for the wider landscape of public offerings.

Timing and Significance of the IPO

With pricing expected tomorrow and trading commencing on Thursday, the current data is likely to be definitive. However, adjustments are possible if Monday.com successfully increases its IPO price range or sets a price above current projections.

Considering the volume of IPOs currently filed or in the pipeline, Monday.com’s performance could serve as an indicator for the broader market of software company exits. Consequently, its initial performance is important not only for the company itself, its workforce, and its investors, but also for the industry as a whole.

Private Placements from Zoom and Salesforce

Zoom and Salesforce have both indicated plans to participate in private placements following the IPO.
These investments will occur after the public offering is finalized.
The details of these investments are included in the F-1/A filing.

Monday.com’s IPO is being closely watched as a potential indicator of market sentiment towards high-growth software companies.

Assessing the Valuation of Monday.com

Determining a company’s worth as it prepares for an initial public offering (IPO) involves several valuation methods. A straightforward approach is the simple valuation, calculated by multiplying the high and low ends of the IPO price range by the total number of shares outstanding post-IPO. For Monday.com, this calculation yields the following:

Lower Valuation: $5.47 billion.
Upper Valuation: $6.12 billion.

These figures can be adjusted by considering the potential exercise of the underwriters’ option to purchase additional shares, known as the greenshoe option. Monday.com has allocated 370,000 shares for this purpose.

An increase of $46.25 million and $51.8 million, respectively, would result from full exercise of the greenshoe option. A limited uptake of these shares by the underwriting banks might suggest Monday.com held a strong negotiating position during the IPO process.

Further influencing Monday.com’s potential IPO price are commitments from Zoom and Salesforce Ventures to purchase $75 million in shares each following the IPO. This represents an additional $150 million in value for the company at the IPO price.

These transactions not only contribute to the company’s valuation but also highlight the core of Monday.com’s product strategy: facilitating app connectivity through no-code and low-code solutions. The participation of Zoom and Salesforce indicates observed customer demand for integrations.

Considering shares potentially issued through outstanding options and warrants, Monday.com’s fully diluted market capitalization could exceed $7 billion. This calculation includes all shares that could eventually be issued.

Regardless of the specific valuation used, Monday.com is poised for a substantial increase from its last private valuation. Data from PitchBook indicates a post-money valuation of $1.75 billion following a $150 million investment in July 2019.

Bloomberg reports that some investors sold shares at a $2.7 billion valuation in 2020. Investors who exited their positions prematurely missed out on significant gains.

While some funds may have been compelled to sell due to time constraints, the difference between the 2020 valuation and the 2021 IPO value represents a considerable increase in the company’s worth.

Evaluating the Monday.com IPO Pricing

The proposed IPO price appears reasonable. Particularly for the company itself and its investors, who seem poised to receive a beneficial valuation.

Assuming Monday.com prices at the upper limit of its projected range, a valuation of $6.12 billion equates to approximately 26 times its annualized revenue run rate from the first quarter of 2021. This represents a strong multiple for any organization and suggests investor confidence in the continuation of its current growth trajectory.

Revenue Growth and Investor Appeal

Monday.com reported total revenue of $59 million in Q1 2021, an increase of nearly 85% compared to the same period last year. This substantial expansion of high-margin, recurring revenue is highly desirable to both private and public investors.

While the company is experiencing rapid growth, it's important to note that its GAAP and non-GAAP operating losses are increasing. However, Q1 2021 did show an improvement in free cash flow compared to the previous year’s results.

Implications for the SaaS Market

The Monday.com IPO suggests that high-growth SaaS businesses, even those currently unprofitable but demonstrating fiscal responsibility, can still achieve significant multiples upon their initial public offering. This is a positive development for the unicorn market.

A more optimistic scenario for IPOs would involve similar multiples being assigned to a wider range of unprofitable companies. However, such a market dynamic could be considered unsustainable. The current environment represents a balance between digital optimism within the public market and a degree of maturity in valuation processes.

Monday.com is expected to finalize its pricing within approximately 30 hours, barring any adjustments to the proposed range in the meantime.