Monday.com (MNDY, Financial), a work and project management software provider, faced high expectations with its Q3 earnings report after strong performances in Q1 and Q2. The stock had surged by about 45% since its Q2 results on August 12, reaching its highest levels since December 2021. Competitor Atlassian (TEAM, Financial) also posted impressive earnings on October 31, raising expectations further.
- MNDY delivered strong Q3 results, surpassing EPS and revenue expectations, driven by improved net dollar retention rates. The net dollar retention rate for customers with over $100,000 in ARR increased to 115% from 114% last quarter, highlighting strength on the large enterprise side. Larger enterprises are better positioned to handle macroeconomic challenges and are turning to platforms like MNDY's and TEAM's for productivity and efficiency improvements.
- Unlike previous quarters, MNDY did not provide upside revenue guidance for Q4. The company's Q4 revenue forecast of $260-$262 million aligns with expectations, but the midpoint suggests a slowdown in growth to 29% from nearly 50% this quarter. This deceleration, coupled with a high 1-year P/S ratio of about 11x, triggered profit-taking and a pullback in the stock.
- MNDY's slowing growth may be linked to weakness among SMBs. Atlassian noted in its October earnings that SMBs are closely monitoring their budgets. MNDY's earlier price increase might be disproportionately impacting its SMB customers.
- Adding to the concerns, MNDY announced an executive change, with Chief Revenue Officer Yoni Osherov stepping down at the end of December 2024. This move could signal a loss of momentum. MNDY also appointed Adi Dar as its new Chief Operating Officer, who was previously CEO of ELOP, a subsidiary of Elbit Systems (ESLT, Financial).
The key takeaway is that although MNDY achieved strong quarterly results, its Q4 revenue outlook disappointed, leading investors to take profits. While the business remains healthy, the combination of slowing growth and a high valuation is exerting selling pressure on the stock.
