monday.com (MNDY) Q3 2026 earnings review
monday.com profit jumps on cost cuts, but sales growth slows
monday.com, the maker of workplace collaboration software, lifted its profit margins through layoffs while its sales growth and contract signings slowed down. Third-quarter revenue rose 19% to $378 million, and operating margin excluding one-offs hit a record 24% after July's staff cuts lowered marketing costs. Co-chief executives Roy Mann and Eran Zinman warned of operational headwinds from the shift to AI and set a fourth-quarter sales plan of 14% growth, below what the prior full-year plan pointed to.
| Revenue | $377.5M +19% from a year ago |
|---|---|
| Operating margin, excluding one-offs | 24% 15% a year ago |
| AI annual recurring revenue | $36M first dollar disclosure; includes bundled credits |
| Q4 revenue outlook | $380–382M about 14% growth, down from 19% in Q3 |
⚖️ Verdict: 🔴 Bearish
The story got worse because contract backlog and customer expansion slowed alongside the fourth-quarter sales plan. By our math, the company added just $9 million to its unbilled contract backlog this quarter, down from $48 million a year ago, and its first dollar figure for AI recurring revenue counts credits bundled into standard subscription plans. The good news: cost cuts are working faster than planned, lifting the full-year operating profit outlook by $37 million.
The question now is whether the new seats-plus-credits pricing brings in fresh spending or mostly repackages existing seat subscriptions while customers trim human licences. If it brings fresh spending, net dollar retention will stop falling and backlog additions will rebound; if it repackages, retention will slip below 108%. Fourth-quarter retention and contract backlog will tell.
🐂 Bull Case
Sales Cuts Lifted Operating Margin by Nine Points
Finance chief Eliran Glazer said the third quarter showed "disciplined execution on profitability" after the workplace software maker cut about a fifth of its staff in July. Operating margin, excluding one-offs, reached a record 23.7%, up 8.7 percentage points from a year ago and well above the 16% plan.
Lower marketing and sales spending did all the work. Sales and marketing costs, excluding one-offs, dropped in dollars and fell 9.4 percentage points as a share of revenue, to 38.5%. Research and development spending rose slightly to 18.5% of sales, while overhead held steady at 7.7%.
What to watch: fourth-quarter operating margin, excluding one-offs, which monday.com plans at about 18%. A reading well above 18% would show the layoff savings are staying in profit rather than going back into sales hiring.
Large Enterprise Customers Keep Growing Fast
monday.com is signing larger corporate accounts even as smaller businesses slow down. Its biggest customer deployment passed 87,000 seats this quarter, and companies spending over $50,000 a year now bring in 44% of annual recurring revenue (ARR), the yearly value of subscription contracts, up from 40% a year ago.
- Customers spending over $500,000 a year: 123, up 58% from a year ago
- Customers spending over $100,000 a year: 2,127, up 33% from a year ago
- Customers spending over $50,000 a year: 5,038, up 26% from a year ago
What to watch: fourth-quarter additions of $100,000-plus customers, which hit 108 in the third quarter. Keeping that pace above 100 in the fourth quarter would show the July sales reorganization has not slowed enterprise deal signing.
🐻 Bear Case
Q4 Plan Points to 14% Growth as New Backlog Stalls
Co-chief executives Roy Mann and Eran Zinman warned that the shift to an AI-first business brings "near-term operational headwinds". Third-quarter sales beat the middle of the company's plan by $8.5 million, but management raised the full-year outlook by only $4 million, cutting the fourth-quarter revenue plan by $4.5 million to 14.1% growth.
Contracted backlog shows why the outlook is lower. Remaining performance obligations (RPO), the total value of signed contracts not yet recognized as revenue, grew 26.6% from a year ago to $946 million, down from 34.0% growth last quarter. By our math, monday.com added just $9 million to RPO since June, compared with $48 million in the same quarter last year, while deferred revenue — cash already billed for future service — fell for a second straight quarter.
What to watch: fourth-quarter RPO additions, which are seasonally the largest of the year and reached $92 million last year. A small addition in the fourth quarter would confirm that contract signings are slowing alongside reported revenue.
AI Reached $36M by Counting Bundled Plan Credits
"Our business is undergoing a fundamental evolution, and we took significant steps this quarter to become an AI-first company," Mann and Zinman said. To back that claim, monday.com reported AI ARR in dollars for the first time at $36 million, with its automated software agents passing 6 million interactions.
The footnote definition cuts against the headline. AI ARR is not just separate AI purchases; it also counts standard subscription plans that include AI credits, "allocated based on the proportion of the list price of AI credits to the aggregate list prices of all products and AI credits in the arrangement". Because the company made seats-plus-credits its default plan in May, normal subscription renewals shift existing seat dollars into AI ARR without a customer paying extra.
What to watch: whether management breaks out stand-alone AI credit purchases from bundled plan allocations on the call or in the annual filing. Until those are separated, a rising AI ARR figure does not prove that AI is bringing in new money.
Customer Expansion Slowed Across Every Group
monday.com tracks how much existing accounts spend compared with a year earlier using its net dollar retention rate (NDR). If AI credits and new products were driving extra spending, NDR would rise, but it fell another point to 108% and dropped across every customer tier.
- NDR across all customers: 108%, down from 109% last quarter and 111% a year ago
- NDR for customers over $100,000 in ARR: 113%, down from 115% last quarter and 117% a year ago
- Paid customers with more than 10 users: 65,965, up just 182 from last quarter
What to watch: whether overall NDR holds at 108% in the fourth quarter, which was management's full-year target set last quarter. A drop to 107% or lower would show that seat cuts at existing customers are outweighing AI credit purchases.
Computing Costs and Currency Weigh on Gross Margin
Gross margin — the share of sales left after the direct cost of running the software and customer support — slipped 1.2 percentage points from a year ago to 88.4%, excluding one-offs. Direct costs grew 27% from a year ago, faster than the 19% rise in revenue, as customer usage of AI tools grew.
Currency exchange rates also continue to hurt profitability because monday.com employs much of its engineering and support staff in Israel. The fourth-quarter and full-year profit plans both assume foreign exchange rates will reduce operating margin by 1 to 2 percentage points.
What to watch: fourth-quarter gross margin, excluding one-offs. Another drop toward the mid-80s while AI ARR remains a small share of revenue would show that included AI credits carry a heavy computing cost before they bring in extra sales.
💲 Other KPIs
Cash left after capital spending, adjusted for restructuring payouts, fell 32% from a year ago, and its margin dropped to 17% of sales from 29%. Unadjusted operating cash flow fell to $20.4 million from $95.1 million because the software group paid out $32.0 million in severance and $15.2 million to exit office leases during the quarter.
Weighted-average diluted shares fell 17.9% from 53.3 million a year ago because the Tel Aviv-based company spent its entire $870 million buyback allowance between the fourth quarter of 2025 and June 2026. That lower share count turned a 51% rise in profit excluding one-offs into an 84% jump in profit per share, to $2.14, though no buyback money remains and lower cash balances cut net financial income by 21% to $12.5 million.
🔮 Guidance
Cut against what the prior full-year plan implied. The new range calls for about 14% growth from a year ago, down from 19% in Q3, and sits $4.5 million below what the old full-year plan left for Q4 at the middle of the range. monday.com has beaten its quarterly sales midpoint by an average of 2.5% over the past four quarters; if the pattern holds, Q4 sales would grow 17.0% by our math.
Raised. The middle of the full-year range moved up $4 million to $1,474 million, or about 20% growth. Because third-quarter revenue beat the middle of its plan by $8.5 million, the company passed through less than half of the third-quarter beat to the full year. Across three updates this year, the midpoint moves have been +$13 million, $0, and +$4 million.
Raised against the prior implied remainder. The plan puts Q4 operating margin excluding one-offs at about 18%, down from 24% in Q3 as the workplace software group invests in enterprise sales and AI, and includes a 1 to 2 percentage point drag from currency rates.
Raised. The middle of the full-year profit target rose by $37 million to $269 million, lifting the full-year operating margin target by two points to about 18%. Third-quarter operating profit beat its plan by $31.4 million, and management added another $5.6 million to the fourth-quarter outlook. It is the third straight raise this year: +$18 million, +$44 million, and +$37 million.
Unchanged at the middle of the range. Management narrowed the target around the same $285 million midpoint, or 19% to 20% of revenue. With $218.1 million generated in the first nine months, the plan leaves $66.9 million for Q4 at the middle of the range by our math, up 18% from Q4 last year.
❓ Key Questions
How much of the $36M AI ARR is bundled credits?
The AI ARR footnote includes a list-price allocation of standard subscription plans that come with AI credits. Investors need to know how much of the $36 million comes from customers paying extra for stand-alone AI products and credit top-ups versus normal plan renewals.
Why did new RPO additions drop to $9M this quarter?
Total RPO rose by only $9 million from June to September, down from a $48 million addition in the same quarter last year, while deferred revenue fell for a second straight quarter. Management has pointed to RPO to explain weak deferred revenue, so a slowdown in RPO itself needs an explanation.
Where did employee headcount land after the July layoffs?
Management previously committed to cutting headcount by about 20% by the end of 2026 from 3,169 in June, and paid $32 million in severance cash in Q3, but the release does not give the quarter-end employee count.
Why is NDR falling at $100k-plus enterprise accounts?
Net dollar retention for customers spending over $100,000 fell two points in a single quarter to 113%, the sharpest drop among the cohorts. If the company is shifting its focus to large enterprises, why are those accounts expanding more slowly?