Why Monday.com’s impressive revenue jump wasn’t enough for Wall Street
Why Monday.com’s impressive revenue jump wasn’t enough for Wall Street
Despite 33% growth, investors reacted to unexpected losses, a leadership change, and a less ambitious Q4 outlook.
What was supposed to be a triumphant quarter for Monday.com—one that marked its official achievement of a $1 billion annual revenue rate—turned into one of the hardest days in the company’s stock history. The stock began to drop immediately upon the release of the third-quarter financial report, even before trading opened on Wall Street, and continued to plummet, reaching a 20% decline during the day.
While the financial report met expectations and showed strong performance similar to the previous quarter, which had triggered a 30% rally, Monday.com’s stock still fell sharply. The company’s valuation, which had reached $16 billion on Friday, dropped back to $13 billion on Monday—still double its 2021 IPO valuation.
Eran Zinman, co-founder and co-CEO of Monday, commented on the stock's decline: “We have no control over market expectations, which have risen significantly in recent months. Even then, we didn’t fully understand the impact of the sharp increase. From a performance perspective, everything is proceeding as planned, but perhaps the market expected us to beat forecasts even more.” Zinman’s explanation seems plausible, particularly considering similar market responses to good reports from companies like Check Point and Teva. With markets at historic highs and Monday trading at a high valuation relative to earnings in the software sector, investor nervousness isn’t surprising.
One factor in Monday.com's case was its unexpected $24 million allocation to the company’s philanthropic foundation. Though the fund has existed for years and is regularly financed through shares that Monday transfers, this was the first time since the IPO that shares were converted and sold to support the foundation. The resulting provision, recorded under “General and Administrative” expenses, contributed to an operating loss—following last quarter’s operating profit. Monday.com explained that previously, the foundation had been financed through proceeds from the IPO itself, and the need for this provision had not arisen until now.
The foundation focuses on two primary initiatives: supporting the use of Monday’s project management software in disaster zones—such as floods, earthquakes, and recently, in coordinating volunteer rescue efforts in the Gaza border area—and offering technology education for children in underserved communities in Israel and abroad.
Despite explanations provided to investors, Monday’s stock continued to decline. The market's reaction likely stems from both high expectations and a slightly conservative forecast for the fourth quarter, with projected revenue of $260-262 million, reflecting a 28% growth rate, down from Q3’s 33%. Monday’s operating loss for Q3 was $27.4 million, compared to $2.5 million in the same period last year. Excluding one-time and accounting adjustments, however, the company reported an operating profit of $32 million and maintained a gross profit margin of 90% and an operating profit margin of 13%, in line with prior quarters. Net income reached $45 million, compared to $33 million in the prior year, while free cash flow remained steady at $82.4 million.
Monday also raised its annual revenue forecast to $964-966 million for 2024, with expected free cash flow of $290 million. However, its revised forecast may have fallen short of market expectations. Free cash flow for Q4 is anticipated to range between $63 million and $66 million, reflecting a seasonal impact from sales bonuses.
Adding to market uncertainty was the announcement of Chief Revenue Officer Yoni Osherov, after seven years in which he helped grow sales from $10 million to $1 billion. Monday also introduced Adi Dar as its new Chief Operating Officer, a role that previously did not exist. Dar, who has experience as CEO of Cyberbit and ELOP, brings a strong background in operations and sales.
Unlike in previous quarters, the market chose to overlook Monday’s positive customer metrics, including a 111% retention rate and a 44% increase in customers paying more than $100,000 annually. Additionally, one major technology client more than doubled its users of Monday’s software from 25,000 to 60,000 in one year.
