Monday.com stock drops as weak Q3 outlook overshadows AI progress

Monday.com shares fell sharply on Monday after the work management software company issued third-quarter revenue guidance that fell short of Wall Street expectations, overshadowing stronger-than-expected second-quarter earnings and continued momentum in its artificial intelligence business.

MNDY shares dropped more than 6% after the company projected third-quarter revenue of $368 million to $370 million, representing growth of 16% to 17%.

The forecast came in below analysts' expectations of $372.8 million, according to FactSet.

The company maintained its full-year revenue guidance of $1.466 billion to $1.474 billion, broadly in line with Wall Street estimates at the midpoint.

Still, Monday.com reported adjusted second-quarter earnings of $1.48 per share, ahead of analyst estimates of $1.11, while revenue increased 22% year over year to $364.6 million, topping expectations of $355.6 million.

Guidance reflects restructuring and pricing changes

Management said the softer outlook reflects organizational changes following the company's decision to reduce its global workforce by approximately 20% in late July, along with the impact of pricing adjustments.

Chief Financial Officer Eliran Glazer said on the earnings call:

“We always try to be responsible, but we do have a strong conviction on the trajectory and the moderation of the guidance reflect our discipline in the moment of transitioning the organization as we continue to move upmarket and also restructuring the organization.”

Co-CEOs Roy Mann and Eran Zinman said the restructuring is designed to accelerate the company's long-term AI strategy.

“We made the difficult decision to restructure our organization, sharpen our product portfolio, and commit fully to the AI Work Platform in order to capture the largest opportunity we have ever seen in software,” Mann and Zinman said.

Mann also described the workforce reduction as “the hardest decision we have made since founding the company,” adding that the restructuring will reduce management layers, create smaller teams and shift the company's go-to-market strategy toward AI.

AI adoption accelerates despite cautious outlook

Monday.com said it has spent the past nine months transforming its platform from a work management application into one where employees and AI agents collaborate.

The company has introduced an AI agent builder, tools that allow customers to create their own work applications and a pricing model based on AI usage rather than user seats.

Management said adoption of its AI products continued to strengthen during the second quarter.

“More telling than any single metric is that AI products adoption continues to accelerate, and customers respond to our new direction,” Mann said.

Annual recurring revenue from AI products doubled from the first quarter and represented 17% of net new ARR during the second quarter.

The company also said it surpassed $1.5 billion in annual recurring revenue in July while adding more than 105,000 customers during the quarter.

Large enterprise customers continue to grow

Monday.com also continued expanding its presence among larger enterprise customers.

The number of paid customers generating more than $500,000 in annual recurring revenue increased 68% year over year to 114, up from 68 a year earlier.

Even with those improvements, investors remained focused on the company's near-term revenue outlook.