A small and hungry fish in a big pond
Andres, Byline (Monday.com): As a provider of cloud-based app development tools, Monday.com is staring down a massive global market. The company has crushed Wall Street's expectations in each one of the three earnings reports it has delivered as a public company. In Wednesday's fourth-quarter update, for example, Monday's net loss was half the size your average analyst had expected, and the top line came in 8% above the Street's consensus estimate. Sales nearly doubled year over year.
However, management set the financial guidance bar low, with easily reachable revenue targets for the next quarter and fiscal year. Full-year sales are expected to land roughly 54% above the 2021 total -- a sharp slowdown from last year's 91% jump. Investors saw these lowball goals as a sign of weakness. The haircut was swift and brutal. Monday's stock plunged 30% lower on Wednesday.
I get it. Decelerating top-line growth can be scary when the company is unprofitable and has to be measured by its revenue-boosting chops. At the same time, Monday's management already has a history of exceeding its own revenue targets by a wide margin. Remember those far-too-modest fourth-quarter analyst estimates? They were largely in line with Monday's guidance for the period. This week's ultra-conservative guidance projections may very well turn out to be too humble, setting the stock up for a dramatic rebound as the high-octane growth story plays out.
And make no mistake -- I see plenty of rocket fuel in Monday's tanks. The company's app development platform provides a simple way to create business-ready software through a point-and-click process with little or no actual coding. The target market for this developer-friendly model accounts for annual sales of around $56 billion today and is only growing larger. Capturing even a small slice of that beefy opportunity should drive Monday's sales, profits, and share prices much higher.
That's why I think that the market reaction to Monday's fourth-quarter report was a big mistake. This company is poised to deliver outsized business growth in a wide variety of market conditions.
A leader in next-gen cybersecurity with strong free cash flow
Billy Duberstein (Palo Alto Networks): With the market combatting dual threats of geopolitical risks and rising inflation, cybersecurity companies that generate profits and cash flow today could be a good safe haven for your investment dollars. Russia is a very active player in cyberattacks, so businesses and governments worldwide will likely be looking to invest in the latest and greatest cyber innovations going forward.
Palo Alto Networks is a leader in cybersecurity, benefiting from a strong incumbent position in firewalls, along with a forward-thinking management team that has pivoted to cloud security software and security operations centers. Palo Alto recently reported very strong earnings that beat revenue and adjusted earnings per share, while also raising guidance for the full year.
The strong growth has been driven by an aggressive pace of innovation, with the number of major new product releases accelerating over the last four years, leading to an increasing consumption of cloud and next-gen software, and therefore higher revenue. As one example, Palo Alto's Cortex SIAM product for security center operations, which was developed organically, has decreased the time to threat detection from 10 days to a matter of hours or even minutes.
That may be why Palo Alto has over 1,000 military customers at the end of the fourth quarter, and roughly 80 of the Fortune 100 large companies. Forty-seven percent of the Global 2000 also use all three of Palo Alto's major platforms, including its Strata firewalls, Prism a secure edge and cloud platforms, and Cortex security operations center tools.
Palo Alto guided for solid 25.5% growth in fiscal 2022 to $6.825 billion, and roughly 32% to 33% free cash flow margins, so it also stands to hold up in a rising rate environment. Actual profitability is lower, due to deferred revenue and upfront subscription payments, as well as high stock-based compensation.
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