Monday.com Faces Post-Earnings Pullback as Growth Outlook Decelerates
2min read Monday.com, a leader in work and project management software, experienced a sharp sell-off following the release of its third-quarter earnings report. Despite delivering another solid quarter with beats on both earnings per share and revenue expectations, concerns over decelerating growth in the coming quarter and a premium valuation have led to significant profit-taking.
The company had set a high bar for itself after back-to-back beat-and-raise quarters in Q1 and Q2. Shares surged approximately 45 percent since Monday.com announced its Q2 results on August 12, reaching their highest levels since December 2021. Additional momentum came from competitor Atlassian’s strong results on October 31, which raised expectations for Monday.com even further.
In the third quarter, Monday.com reported robust net dollar retention rates, particularly among large enterprise customers. The retention rate for customers with over $100,000 in annual recurring revenue (ARR) increased to 115 percent from 114 percent in the previous quarter. This growth reflects the trend of larger enterprises seeking productivity and efficiency improvements through platforms like Monday.com’s, as they are better positioned to navigate macroeconomic headwinds compared to small and medium-sized businesses (SMBs).
Despite the strong Q3 performance, the company’s outlook for the fourth quarter fell short of elevated market expectations. Revenue guidance for Q4 came in at $260-$262 million, representing a significant deceleration in growth to 29 percent from nearly 50 percent in Q3. While this growth rate remains enviable for many companies, it disappointed investors accustomed to Monday.com’s faster pace of expansion. This slowdown, coupled with the company’s high one-year price-to-sales ratio of approximately 11x, triggered the current sell-off.
Challenges in the SMB segment appear to be a key factor in the slowing growth. SMB customers, who are more sensitive to macroeconomic pressures, are reportedly scrutinizing their spending more closely. Monday.com’s earlier price increases may also be contributing to this softness among smaller clients, further weighing on the company’s growth trajectory.
Adding to investor concerns was the announcement of an executive shake-up. Chief Revenue Officer Yoni Osherov will step down at the end of December 2024, which raised questions about the company’s momentum. Additionally, Adi Dar, formerly CEO of Elbit Systems subsidiary ELOP, has been named as the new Chief Operating Officer.
While Monday.com has consistently exceeded earnings expectations over the past five years, the combination of slowing growth, a challenging SMB environment, and leadership transitions has created headwinds. Investors, concerned about the high valuation and tempered near-term growth outlook, are taking gains off the table.
The takeaway is that Monday.com remains fundamentally strong, particularly in its large enterprise segment, but it faces mounting challenges in maintaining its historical growth rates. As the company navigates these hurdles, its ability to manage costs, maintain retention among SMBs, and sustain enterprise demand will be critical to rebuilding investor confidence. For now, the stock’s high valuation leaves little room for error, amplifying the impact of any perceived slowdown.