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MongoDB (NASDAQ:MDB) Q2: Beats On Revenue, Provides Encouraging Quarterly Guidance


Full Report / August 31, 2022
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Database software company MongoDB (MDB) reported results ahead of analyst expectations in the Q2 FY2023 quarter, with revenue up 52.7% year on year to $303.6 million. Guidance for next quarter's revenue was $301.5 million at the midpoint, 2.34% above the average of analyst estimates. MongoDB made a GAAP loss of $118.8 million, down on its loss of $77.1 million, in the same quarter last year.

MongoDB (MDB) Q2 FY2023 Highlights:

  • Revenue: $303.6 million vs analyst estimates of $282.3 million (7.56% beat)
  • EPS (non-GAAP): -$1.74 vs analyst estimates of -$0.28 (-$1.46 miss)
  • Revenue guidance for Q3 2023 is $301.5 million at the midpoint, above analyst estimates of $294.5 million
  • The company lifted revenue guidance for the full year, from $1.18 billion to $1.2 billion at the midpoint, a 1.6% increase
  • Free cash flow was negative $48.5 million, down from positive free cash flow of $8.44 million in previous quarter
  • Customers: 37,000, up from 35,200 in previous quarter
  • Gross Margin (GAAP): 70.9%, up from 69.4% 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 exceptional over the last year, growing from quarterly revenue of $198.7 million, to $303.6 million.

MongoDB Total Revenue

This was another standout quarter with the revenue up a splendid 52.7% year on year. Quarter on quarter the revenue increased by $18.2 million in Q2, which was roughly in line with the Q1 2023 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates MongoDB is expecting revenue to grow 32.8% year on year to $301.5 million, slowing down from the 50.4% 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 24.9% over the next twelve months.

Customer Growth

You can see below that MongoDB reported 37,000 customers at the end of the quarter, an increase of 1,800 on last quarter. That is a fair bit slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

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 70.9% in Q2.

MongoDB Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still 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 follow 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 $48.5 million in Q2, increasing the cash burn by 114% year on year.

MongoDB Free Cash Flow

MongoDB has burned through $32.5 million in cash over the last twelve months, resulting in a negative 3% 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 Q2 Results

With a market capitalization of $22.5 billion, more than $1.79 billion in cash and the fact it is operating close to free cash flow break-even the company is in a strong financial position to invest in growth.

We were impressed by the exceptional revenue growth MongoDB delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a deterioration in free cash flow and there was a slowdown in customer growth. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $322.86 per share.

Is Now The Time?

When considering MongoDB, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although MongoDB is not a bad business, it probably wouldn't be one of our picks. 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.

The market is certainly expecting long term growth from MongoDB given its price to sales ratio based on the next twelve months is 16.4x. We can find things to like about MongoDB and there's no doubt it is a bit of a market darling, at least for some. But we are wondering whether there might be better opportunities elsewhere right now.

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