monday.com guides to 14% growth after 19%, and its margin to 18% from 24%

01The three headwinds behind the 14%

Growth fell from 32% to 19% over the seven quarters to September, a step of one to three points each time.^12345678 The guide is five. On the call Zinman named three causes: the restructuring announced in July, which cut about 20% of the workforce and was “creating some near-term disruption”; small customers, where “SMB customer additions were lower and SMB logo churn was higher”, which he said was “by design” as the company moves towards larger accounts; and “more deliberate buying behavior and longer sales cycles” as customers work out how AI fits their business.⁹¹⁰

The picture differs by size. Net dollar retention, what existing customers pay now against a year earlier, was 108%, down from 111%; the chief financial officer, Eliran Glazer, expects 107% next quarter. Customers paying more than US$50,000 a year rose 26% and those paying more than US$100,000 rose 33%, while customers with more than 10 users rose 5%.¹¹⁰

The guide assumes the third quarter’s trends continue.¹⁰ It is also the company’s own number, and monday.com has lately beaten its own numbers: it guided 18% to 19% for April–June and reported 22%, and 16% to 17% for July–September and reported 19%.²³ Glazer called the outlook “prudent” and said the company was “probably a few quarters from getting back to something that implies more stability”.¹⁰

02Why the margin peaks and the cash does not

Non-GAAP operating income was US$89.4m against US$47.5m a year earlier. The gain came from sales and marketing, down to US$145.4m from US$151.8m on higher revenue.¹ The guide is US$68m to US$70m. Glazer said most of about US$100m of restructuring savings is being reinvested, with fourth-quarter costs carrying pay changes, AI running costs and the company’s Elevate customer event; the guide also assumes a 100 to 200 basis point hit from currency. For the full year the margin guide rises to about 18% from about 16%.¹²¹⁰

Operating cash flow fell to US$20.4m from US$95.1m. Most of the gap is the restructuring: US$47.2m of severance and office-exit payments went out in the quarter, and the company’s adjusted free cash flow, which adds them back, was still lower at US$63.0m against US$92.3m.¹ Glazer said that cash follows ARR, and that slower net additions from small customers are holding it back.¹⁰

AI products reached US$36m of annual recurring revenue, about 2.4% of annualised quarterly revenue (our arithmetic). That counts credit packages and an allocated share of plans that include credits.¹ Glazer said of the US$36m: “it’s not incremental yet. It’s part of our overall ARR.”¹⁰

The release reached the SEC at 7:00am New York time on 9 November, before the market opened. The shares closed at US$79.93 that day, down 9.1% from US$87.93, after falling 6.3% on 6 November.¹¹¹ What to watch: whether net dollar retention holds at 107%, and whether the fourth-quarter costs prove to be the run rate Glazer describes.