Application development software helps organizations develop IT software solutions, enabling them to perform different tasks with greater efficiency.
With an estimated CAGR of 25.54% over the next five years, the global application development software industry is expected to reach $1,039.89 billion over the past year. Verified market research reports. The industry is expected to grow owing to the growing demand for cloud-based solutions and the increased use of Internet of Things (IoT) technology.
With that in mind, today I’m going to analyze and compare two software stocks, Smartsheet Inc. (SMAR) and monday.com Ltd. (MNDY), to determine which is a better investment at this time.
Based in Bellevue, Washington, Smartsheet offers a cloud-based platform that enables teams and organizations to plan, capture, manage, automate, and report on work. Founded in 2012, MNDY creates software applications in the United States and around the world. It also provides solutions for marketing, CRM, project management, software development and other areas.
Since the beginning of the year (YTD), SMAR is down 31.5%, while the shares of MNDY dove 49.7%.
On February 24, DA Davidson analyst Robert Simmons upgraded Monday.com from Neutral to “Buy” after the company’s shares fell more than 20% amid the fourth quarter earnings report. The main reasons for the company’s upgrade were positive free cash flow and guidance for 2022, reflecting a “mixture of a good turnover and a less good margin.” The analyst noted: “The company is launching new products, strengthening its top-of-funnel and expanding its go-to-market, giving us confidence in the long-term sustainability of growth.” However, the investment firm lowered Monday.com’s price target from $275 to $170.
Recent quarterly performance and analyst estimates
December 2, Smartsheet Inc. Reports Fiscal Third Quarter 2022 Results. Its total revenue increased 47.1% year-over-year to $144.63 million, primarily due to a 46% year-over-year increase in its revenue from subscription at $132.6 million. Additionally, the company’s professional services revenue increased 50% year-over-year to $12.03 million. As a result, SMAR exceeded Wall Street revenue estimates by $4.7 million. Additionally, the company reported non-GAAP EPS of ($0.03), beating analysts’ expectations of $0.08.
Importantly, the average annualized contract value (ACV) per domain-based customer was $6,368, representing a 37% year-over-year growth. Additionally, the number of all customers with ACVs of $5,000 or more increased 27% year-over-year to 14,228. Finally, the net dollar retention rate was 131% versus 125% in the quarter of the previous year, thereby increasing the long-term value of the company’s customer relationships.
For the next quarter, analysts expect SMAR’s EPS to come in at ($0.15), down 274.72% year-over-year. Its revenue for the fourth quarter of 2022 is expected to increase 38.00% year-on-year to $151.63 million.
February 23, monday.com has published its results for the fourth quarter of 2021. Shares of the company plunged more than 20% after posting a loss in the fourth quarter. For now, let’s focus our attention on the company’s operating metrics in the fourth quarter.
In the fourth quarter, the company’s total revenue increased 90.5% year-over-year to $95.5 million, beating consensus revenue estimates of $7.7 million of dollars. The company also increased its non-GAAP gross margin by 100 basis points to 90% in 4Q2021. In addition, its net dollar retention rate was over 120% compared to 105% in the fourth quarter of 2020. The total number of paying customers increased by 34% to 152,048 million compared to 113,888 as of December 31, 2020, while the number of paying customers with more than $50,000 in annual recurring revenue (“ARR”) was 793, an increase of 200% from 264 as of December 31, 2020.
However, the company recorded a net loss of $32.61 million in the fourth quarter of 2021, compared to a value of $62.86 million a year ago. As a result, MNDY’s non-GAAP EPS was reported at ($0.26), beating analyst estimates of $0.26.
Analysts have reached a consensus projection of ($1.02) EPS for the first quarter of 2022. Additionally, his FQ1 earnings are expected to reach $101.22 million.
Options Market Sentiment Comparison
Looking at the March 18, 2022 options channel for both SMAR and MNDY, we can define options market sentiment by analyzing open interest levels. For SMAR, the ratio of open calls to open puts at the strike price of $55.00 stands at 0.14x, indicating strong bearish sentiment in the options market. As for MNDY, the ratio of open calls to open sells at the strike price of $160.00 is 1.26x, which demonstrates bullish sentiment.
While Smartsheet and monday.com should capitalize on long-term software industry growth, I believe monday.com currently presents a better buying opportunity due to its superior financial results, favorable coverage by analysts and better sentiment in the options market.
SMAR shares were trading at $53.43 per share on Monday morning, up $0.36 (+0.68%). Year-to-date, the SMAR is down -31.01%, compared to a -8.18% rise in the benchmark S&P 500 over the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as a financial analyst and financial journalist. Previously, he was a contributing editor to Seeking Alpha, Talks Market and Market Realist. Continued…