Why Monday.com Sank Today
Key Points
Monday.com reported a beat on the top and bottom lines.
However, current quarter guidance was slightly below Wall Street's expectations.
Despite AI-related tools doubling quarter-over-quarter, they still make up a small proportion of Monday.com's revenue.
- 10 stocks we like better than Monday.com ›
Shares of enterprise software company Monday.com (NASDAQ: MNDY) sank 6.2% on Monday as of 3:50 p.m. EDT.
Monday.com is an enterprise software company that offers productivity, workflow, customer service, customer surveys, customer relationship management, and other software building blocks for businesses worldwide. As such, the stock has been caught up in this year's "SaaS-pocalypse," in which software stocks have sold off hard on AI-related disruption fears, almost regardless of current business performance.
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As such, stocks like Monday.com tend to sell off even on strong earnings reports if one or two metrics come up short. That appears to be the case today.
A case of the Mondays
In the second quarter, Monday.com reported revenue growth of 21.9% to $364.6 million, with adjusted (non-GAAP) earnings per share jumped 35.8% to $1.48. Both figures beat expectations.
Despite the solid beat, there were some imperfections. The company guided current-quarter revenue to be between $368 million and $370 million, slightly below analysts' expectations, signaling a deceleration in growth to 16%-17%. Net revenue retention, which measures the growth from existing customers, came in at 109%. That's actually a good number; however, it's the lowest NRR growth in Monday's recent history.
Image source: Getty Images.
A case to buy the dip
Despite the "imperfections," this was still a pretty strong report for Monday.com, which now trades at just 15.8 times 2027 earnings estimates. That's very cheap for a software company growing in the high-teens to low-20% range.
Furthermore, management cited progress in its AI-powered offerings, with AI-related tools doubling quarter over quarter. That still accounted for a tiny number, at 17% of new annualized revenue -- not 17% of all revenue, just new revenue -- but the extremely fast growth rate is promising.
If software companies can manage through this transition, implement AI tools into their software, and successfully administer usage-based pricing models, they sure look like inexpensive stocks right now. While that will remain an open question for the foreseeable future, Monday.com looks to be a solid choice to add to a basket of SaaS names for those willing to bet on the sector's ultimate survival and success in the AI era.
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Billy Duberstein and/or his clients have 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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