Why Monday.com Stock Plummeted by 15% This Week
Key Points
At first blush, this was mysterious, as it posted an outwardly good-looking third quarter.
Investors were focused on a revenue guidance miss, however.
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Enterprise software company Monday.com (NASDAQ: MNDY) published its latest quarterly figures on its namesake day, and that set the tone for the rest of the week. Unfortunately, that tone was bearish, as the shares closed the period down more than 15% in value, according to data compiled by S&P Global Market Intelligence.
Guidance came up short
Monday.com actually beat the average analyst estimates for its third quarter. Its revenue, which rose by 26% year over year, came in just shy of $317 million.
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On the bottom line, the company reported a profit of $13 million, compared to a year-ago loss of over $12 million, according to generally accepted accounting principles (GAAP). On a non-GAAP (adjusted) basis, net income was $1.16 per share, well above the third-quarter 2024 profit of $0.85.
The consensus analyst estimates were for revenue of slightly more than $312 million and adjusted earnings per share (EPS) of $0.88.
The trailing results weren't the problem for Monday.com. Rather, it was the company's guidance for its current (fourth) quarter that had investors heading for the exits. Management forecast revenue for the period of $328 million to $330 million; however, the average pundit expectation sits just under $334 million.
Here come the bears
Several analysts tracking Monday.com stock wasted little time adjusting their takes on the company, and most of these changes weren't positive. A clutch of prognosticators lowered their price targets, including professionals from influential finance sector mainstays like Morgan Stanley and Citigroup.
Investors in relatively young tech companies tend to be sensitive to guidance misses, as one of the great draws of such stocks is their potential for growth. I'd point out here that Monday.com's supposedly dispiriting fourth-quarter forecasts model at least a 22% year-over-year rise in revenue, which would be the envy of many businesses.
To me, then, the week's fire sale of Monday.com feels like an overreaction. The resulting slump might be a fine opportunity to acquire a good company at a discount.
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Citigroup is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Monday.com. The Motley Fool has a disclosure policy.
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