monday.com (MNDY) experienced a substantial stock price drop of 38.3% over the past month, exacerbated by cautious forward guidance and significant downward revisions to earnings estimates. Despite strong Q2 2025 performance, investor concerns over decelerating growth, aggressive spending, and the impact of AI on search-driven customer acquisition led to a Zacks Rank #5 (Strong Sell) and underperformance against broader market indices.

monday.com (MNDY) Stock Sees Significant Decline Amid Cautious Guidance and Earnings Estimate Revisions

U.S. equities saw monday.com Ltd. (MNDY) stock plummet by 38.3% over the past month, notably underperforming the Zacks S&P 500 composite's modest gain of 0.9% during the same period. This significant downturn, which included a sharp 26.85% drop to $181.44 on August 11, 2025, occurred despite the company reporting robust second-quarter fiscal 2025 results that surpassed analyst expectations. The market's adverse reaction was primarily attributed to the company's cautious guidance for the upcoming quarter and substantial downward revisions to its earnings estimates, leading to a Zacks Rank #5 (Strong Sell) designation.

The Event in Detail

For the second quarter of fiscal year 2025, monday.com reported revenue of $299 million, representing a 27% year-over-year increase and exceeding Wall Street forecasts of $293.6 million. Adjusted earnings per share (EPS) reached $1.09, outperforming expectations of $0.86 and marking a 16% rise from the previous year. Despite these strong top and bottom-line beats, the company recorded a GAAP operating loss of $11.6 million, a shift from an operating income of $1.8 million in Q2 2024. Non-GAAP operating income did increase to $45.1 million from $38.4 million year-over-year, though non-GAAP operating margins slightly decreased from 16% to 15%.

The immediate trigger for the stock decline was the company's forward-looking guidance, which indicated a potential slowdown in future growth. This cautious outlook, combined with significant negative changes in consensus earnings estimates, fueled investor apprehension. Within the last 30 days, earnings estimates for the current quarter were revised down by 44.6%, and for the current fiscal year, they saw a 30.1% reduction. This revision contributed to Zacks Equity Research issuing a Zacks Rank #5 (Strong Sell) for MNDY on September 8, 2025, signaling a high probability of near-term underperformance. Year-to-date, MNDY shares have plunged 19%, significantly trailing the Zacks Internet - Software industry, which advanced by 15.4%, and the broader Zacks Computer and Technology sector, which rose by 20.4%.

Analysis of Market Reaction

The market's negative reaction underscores a heightened investor sensitivity to growth deceleration and future outlooks, particularly within the high-growth technology sector. While monday.com demonstrated solid operational metrics—including robust customer acquisition and expansion, a 46% year-over-year increase in customers with over $100,000 in annual recurring revenue (ARR), and a strong net dollar retention rate of 115% for customers with more than 10 users—a cautious guidance overshadowed these achievements.

Contributing to investor concerns is monday.com's aggressive spending trajectory, which is exerting pressure on profitability metrics. Research and development (R&D) costs surged to 20% of revenues in Q2 2025, up from 16% a year earlier, driven by heavier AI-related investments. Similarly, sales and marketing (S&M) expenses consumed 47% of revenue, indicating a continued reliance on costly customer acquisition. This elevated expense base, coupled with an expected 30% headcount expansion in fiscal 2025, raises questions about the sustainability of current investment levels and long-term margin stability. The non-GAAP operating margin contraction to 15% in Q2, from 16% in the prior-year period, further illustrates eroding operational efficiency.

A significant factor impacting monday.com's outlook is the "AI search disruption." Bank of America downgraded MNDY to Neutral from Buy, citing a substantial decline in web traffic driven by search engine optimization (SEO). According to Similarweb data, SEO-driven visits decreased by an average of 23.5% year-over-year in Q2 2025, accelerating to a 25.3% decline in July. This downturn is attributed to Google's expanding integration of AI Overviews into search results, directly impacting monday.com's "self-serve" segment, a crucial driver of its growth. The "self-serve gross added ARR," which grew approximately 29% year-over-year in 2024, declined by 7% year-over-year in Q2 2025.

Broader Context and Implications

This event highlights a broader trend within the software industry where companies are under immense pressure to not only meet but consistently exceed high growth expectations. Any indication of a slowdown can trigger substantial market corrections, even in the face of strong current performance. The "AI search disruption" exemplified by monday.com's situation suggests a vulnerability for companies that heavily rely on traditional SEO for customer acquisition, potentially leading to a re-evaluation of marketing strategies and increased customer acquisition costs across the sector.

From a valuation standpoint, MNDY is currently trading at a forward 12-month Price/Sales ratio of 6.84x, compared to the industry average of 5.74x. While its blended P/E ratio of 46.03 is below its historical "normal" of 84.40, it remains more than double the fair value P/E estimate of 21.50, suggesting a premium valuation despite the recent stock slide. This contrasts with competitors like Salesforce, which reported 11% year-over-year revenue growth and sustained a non-GAAP operating margin above 30%, and Atlassian, with 22% revenue growth and a 24.3% non-GAAP operating margin, both demonstrating more efficient scaling.

Expert Commentary

Bank of America analyst Matt Bullock downgraded monday.com, maintaining a price target of $205, primarily due to increasing risks stemming from the decline in SEO-driven web traffic. Bullock emphasized that if weak traffic trends persist, monday.com could face "material self-serve pressures" in the second half of 2025 and throughout 2026, leading to a projected 5.2% year-over-year decline in 2026 self-serve gross ARR added.

Conversely, analysts from Jefferies consider the recent selloff in MNDY shares to be "overdone." They reiterated a "top pick" rating, highlighting the stock's compelling value at 5.6 times forward enterprise value to sales, which is 36% below its three-year average. Jefferies anticipates monday.com will sustain over 20% annual revenue growth, driven by cross-selling, AI monetization, and expansion into the upmarket segment. The consensus among 26 Wall Street analysts reflects a "Moderate Buy" rating for MNDY, with an average 12-month price target of $303.59, implying a significant upside from its current price.

Looking Ahead

monday.com is actively pursuing strategic initiatives to address current headwinds and articulate its long-term vision. The company is scheduled to host its 2025 Investor Day on September 17, 2025, coinciding with its annual customer conference, Elevate NYC. This event will be a crucial platform for monday.com to showcase its growth trajectory and future plans to investors and customers.

Prior to this, the company presented at the Goldman Sachs Communacopia + Technology Conference 2025, emphasizing its robust growth trajectory, innovative AI initiatives, and market expansion plans. monday.com aims to achieve an Annual Recurring Revenue (ARR) of over $1.2 billion this year.

New product launches and deep AI integration are central to monday.com's strategy. The company unveiled a platform-wide AI shift in July 2025, signaling the "Work Execution Era," and recently showcased three new AI-powered capabilities: Monday Magic, Monday Vibe, and Monday Sidekick, designed to enhance productivity and user engagement. These AI investments, coupled with strategic partnerships, aim to capitalize on the increasing demand for efficient work management solutions and may mitigate concerns about future revenue impact from AI, which is expected to become meaningful from 2026 onward. With a strong balance sheet holding $1.6 billion in cash and no debt, monday.com possesses the flexibility for continued investment and strategic initiatives to navigate competitive pressures and sustain growth in the evolving software market.