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MongoDB (NASDAQ:MDB) Q3 Sales Beat Estimates, Stock Jumps 19.3%


Full Report / December 06, 2022
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Database software company MongoDB (MDB) reported results ahead of analyst expectations in the Q3 FY2023 quarter, with revenue up 47% year on year to $333.6 million. The company expects that next quarter's revenue would be around $335.5 million, which is the midpoint of the guidance range. That was above analyst expectations. MongoDB made a GAAP loss of $84.8 million, down on its loss of $81.2 million, in the same quarter last year.

MongoDB (MDB) Q3 FY2023 Highlights:

  • Revenue: $333.6 million vs analyst estimates of $304.7 million (9.48% beat)
  • EPS (non-GAAP): $0.23 vs analyst estimates of -$0.17 ($0.40 beat)
  • Revenue guidance for Q4 2023 is $335.5 million at the midpoint, above analyst estimates of $314.8 million
  • Free cash flow was negative $8.43 million, compared to negative free cash flow of $48.5 million in previous quarter
  • Customers: 39,100, up from 37,000 in previous quarter
  • Gross Margin (GAAP): 71.9%, up from 69.8% same quarter last year

Started in 2007 by the team behind Google’s ad platform DoubleClick, MongoDB offers database-as-a-service that helps companies store large volumes of semi-structured data.

The standard relational databases function like Excel on steroids, they store data in rows and columns across different tables. This works well if you need to store a lot of data that has a similar structure, but it can create potential inefficiencies if the structure of the data you are storing varies a lot. MongoDB instead stores data in records called documents, which, similarly to a patient’s documents in a doctor’s office, have all the data for one entity in one folder, even though what is in the folder can vary a lot between entities.

Similar to other businesses like Elastic (ESTC), MongoDB is built on a business model that combines free open source software with paid offerings. The paid product has features valuable for enterprise customers and offers a fully hosted service, but developers can also download and use the limited version of MongoDB for free, which makes it really easy to try and evaluate.

Data is the lifeblood of the internet and software in general, and the amount of data created is growing at an accelerating pace. Likewise, the importance of storing the data in scalable and efficient formats continues to rise, especially as the diversity of the data and associated use cases expand from analyzing simple, structured data to high-scale processing of unstructured data, images, audio and video.

Competitors include database providers such as IBM (NYSE:IBM), and Oracle (NYSE:ORCL) as well as cloud offerings provided by Amazon (NASDAQ:AMZN), Google, and Microsoft (NASDAQ:MSFT).

Sales Growth

As you can see below, MongoDB's revenue growth has been impressive over the last two years, growing from quarterly revenue of $150.7 million in Q3 FY2021, to $333.6 million.

MongoDB Total Revenue

And unsurprisingly, this was another great quarter for MongoDB with revenue up 47% year on year. On top of that, revenue increased $29.9 million quarter on quarter, a very strong improvement on the $18.2 million increase in Q2 2023, and a sign of acceleration of growth.

Guidance for the next quarter indicates MongoDB is expecting revenue to grow 25.8% year on year to $335.5 million, slowing down from the 55.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 20.2% over the next twelve months.

Customer Growth

You can see below that MongoDB reported 39,100 customers at the end of the quarter, an increase of 2,100 on last quarter. That is a fair bit better customer growth than last quarter and in line with what we have seen in previous quarters, demonstrating the company has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

MongoDB Customers

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. MongoDB's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 71.9% in Q3.

MongoDB Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. MongoDB burned through $8.43 million in Q3,

MongoDB Free Cash Flow

MongoDB has burned through $31.7 million in cash over the last twelve months, resulting in a negative 2.66% free cash flow margin. This below average FCF margin is a result of MongoDB's need to invest in the business to continue penetrating its market.

Key Takeaways from MongoDB's Q3 Results

With a market capitalization of $10.2 billion, more than $1.78 billion in cash and the fact it is operating close to free cash flow break-even, we're confident that MongoDB has the resources it needs to pursue a high growth business strategy.

We were impressed by the very optimistic revenue guidance MongoDB provided for the next quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was unfortunate to see that MongoDB's revenue guidance for the full year missed analysts' expectations . Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 19.3% on the results and currently trades at $173 per share.

Is Now The Time?

MongoDB may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We cheer for everyone who is making the lives of others easier through technology, but in case of MongoDB we will be cheering from the sidelines. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. Unfortunately, its gross margins aren't as good as other tech businesses we look at.

Given its price to sales ratio based on the next twelve months is 7.0x, MongoDB is priced with expectations of a long-term growth, and there's no doubt it is a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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