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Coming off back-to-back beat-and-raise performances in Q1 and Q2, work and project management software provider Monday.com (MNDY) was facing a high bar to hurdle this morning when it released its Q3 earnings report. Reflecting those lofty expectations, the stock had surged by about 45% since MNDY posted Q2 results on August 12, taking shares to their highest levels since December 2021. An impressive earnings report from competitor Atlassian (TEAM) on October 31 only served to ratchet those expectations higher.

• As anticipated, MNDY did indeed deliver strong Q3 results, comfortably beating EPS and revenue expectations on improving net dollar retention rates. The strength on the large enterprise side especially stands out with the net dollar retention rate for customers with over $100,000 in ARR ticking up to 115% from 114% last quarter. These larger enterprises are better equipped than SMBs to absorb macroeconomic headwinds, and many have been turning to platforms like MNDY's and TEAM's to improve productivity and efficiency amid a challenging demand backdrop.
• However, unlike the prior two quarters, MNDY didn't issue upside revenue guidance for the current quarter. The company's Q4 revenue forecast of $260-$262 mln was merely in line with expectations while the midpoint of that range equates to a sharp slowdown in growth to 29% from nearly 50% this quarter. Although many companies would gladly accept that level of growth, the deceleration, combined with a pricey 1-year P/S of roughly 11x, provided the spark to ignite this profit-taking pullback.
• MNDY's slowing growth is likely related to some softness in SMBs. When TEAM reported earnings in October, the company noted that SMBs were continuing to scrutinize their spending budgets. Earlier this year, MNDY pushed through a price increase that may be disproportionately affecting its SMB customers. 
• Probably not helping matters is the fact that MNDY also announced an executive shake-up in this morning's earnings press release. Specifically, the company announced that Chief Revenue Officer Yoni Osherov has decided to step down from his position at the end of December 2024. The move doesn't inspire confidence because one would naturally assume that if momentum were still on MNDY's side, an executive wouldn't be looking to leave. MNDY also announced the appointment of Adi Dar as its new Chief Operating Officer, who previously served as CEO of ELOP, a subsidiary of Elbit Systems (ESLT).

The main takeaway is that while MNDY once again turned in strong quarterly results -- the company has exceeded EPS estimates in each quarter over the past five years, while missing on revenue just once -- its disappointing Q4 revenue outlook has investors taking gains off the table. Business is still healthy overall for MNDY, but the combination of slowing growth and a rich valuation is creating strong selling pressure.