What Should Investors Do With the New Wave of IPOs?
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What financial results did Monday.com report and why are they significant?
What should investors do with the new wave of IPOs coming? You're listening to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm Jon Quast, and I'm joined today by Fool contributors Matt Frankel and Rachel Warren. And later in the show, we do want to talk about a new IPO that is coming to market, as well as a question from you regarding what to do with new IPOs when they do go public. But first, we wanted to talk about an earnings report that came out this morning. And that is from Monday.com. This is a enterprise software company. And we've been talking about the death of SaaS stocks. And this kind of reminds me of the Monty Python routine where they're saying, bring out your dead.
And the one guy's like, I'm not dead yet. I'm actually getting better. Well, Monday.com gets lumped in with the stocks that are doomed. And it reported today, the market apparently loved it. because, man, the stock jumped about 25% in pre-market trading. I see it's down from that now that we're recording, but this is a stock that got hammered down over 70% over the last year, but there must have been something here that the market liked, Rachel.
Yeah, I mean, the stock has taken a massive beating over the last year, down significantly. And it's worth noting, you know, Monday.com stock is still down about 50% year to date at the time that we're recording this episode. And I think what we've been seeing is really, I think, a lot of the market appetite that's been surrounding a lot of software stocks, right? This fear that generative AI will either disrupt Monday.com's customer acquisition, maybe render its project management tools obsolete, or But certainly there were a few things that the market liked. So for starters, Money.com beat analyst expectations on the top line with $351 million in revenue. That was a 24% year-over-year increase.
The company also delivered adjusted earnings per share of $1.15. That's compared to what analysts were guiding for of just $0.93 a share. Management also raised their guidance for 2026. They're now looking to bring in about 1.5 billion in revenue. There's the launch of their new AI work platform. Also net dollar retention rate was 110%. So there were certainly some good numbers with the market seems to like.
Matt, what stood out to you? Yeah, so in a nutshell, the market was pricing in three things, right? Rapidly slowing growth, margin compression, and the risk of AI disruption. And this quarter really showed better than expected results when it comes to all three of those things. So Rachel noted that Monday beat expectations on the top and bottom line. They gave excellent guidance. Beyond those headlines, looking at RPOs, remaining performance obligations, which is, you know, future booked work, that was up 33% year over year. And anytime you see foreclosures future revenue growing faster than current revenue, it's generally a good sign and the market takes it as such. Enterprise customer expansion is a very, very impressive story.
Monday's clients that account for more than $100,000 in annual recurring revenue, that grew by 39% year-over-year in the quarter, much higher than the overall top line. Those tend to be very sticky customers, so that's a part of the story the market's really paying attention to.
What upcoming IPO is being discussed and what makes it noteworthy?
Management specifically pointed out that 10% of new annual recurring revenue was driven by AI specifically and that it expects that to continue to grow. They just announced their new seats plus credit business model or pricing model, which a lot of AI software companies are expected to do. They just announced that last week. And it will be rolled out over time. And it should help keep revenue growing as AI can do more of its customers' work for them. And finally, on the issue of margins, operating margin doubled to 6% from 3% a year ago. And despite the really strong revenue growth, management said that headcount is going to remain relatively stable for the next year. And that is a good indicator that we should see margins kind of expand even further.
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Chapters
4 chapters
1
What financial results did Monday.com report and why are they significant?
0:02–3:18
2
What upcoming IPO is being discussed and what makes it noteworthy?
3:18–5:52
3
How is the market reacting to Monday.com's earnings report?
5:52–12:45
4
What are the implications of generative AI on Monday.com's business model?
12:45–21:15