Shares of Monday.com (NASDAQ: MNDY) declined today even after the cloud software company posted stronger-than-expected earnings for the fourth quarter. The reason? A less-than-encouraging forecast for the first quarter, largely stemming from issues in its “self-service” segment.
Monday.com, known for its customer relationship and project management software, is part of the broader Software-as-a-Service (SaaS) market. This sector is currently facing pressure from emerging AI technologies, such as Anthropic’s Claude Code, which could potentially alter how workflow-related software operates.
After the earnings announcement, the stock plummeted by 22.4% by midday. This was despite a fourth-quarter sales increase of 25%, totaling $333.9 million, surpassing the anticipated $329.7 million.
The company also celebrated a significant milestone, noting a record number of customer additions exceeding $100,000 in annual recurring revenue. Additionally, Monday Vibe, its AI-driven coding tool that utilizes prompts instead of traditional code, quickly achieved over $1 million in annual recurrent revenue, marking the fastest in the company’s history.
Adjusted earnings per share did drop slightly to $1.04 from $1.08, partly due to heightened research and development expenditures. However, this still exceeded the consensus estimate of $0.92. Co-CEOs Roy Mann and Elan Zinman highlighted the growth of the product range and the solid uptake of their AI offerings, particularly among larger clients.
Despite this, the lack of robust guidance may have troubled investors, especially following an AI-driven selloff in the market. For the first quarter, the company forecasts a sales growth slowdown to between $338 million and $340 million, falling short of the consensus of $342.9 million.
Looking at the full year, expectations also seem muted, with predicted sales growth ranging from 18% to 19%, which would amount to approximately $1.452 billion to $1.462 billion—again, below the consensus figure of $1.48 billion.
This uninspiring guidance indicates potential challenges in attracting lower-end customers and possibly reflects the rising competition in AI.
Currently, Monday.com’s stock has dropped about 70% compared to last year. The company needs to reassure investors that its business model will remain intact amidst AI advancements to reverse this trend. So far, that doesn’t appear to be an easy task.
For those considering investing in Monday.com, it’s worth noting the broader landscape.
According to analysis from Motley Fool Stock Advisor, there are currently ten other stocks deemed more promising for potential returns than Monday.com.
