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MongoDB's (NASDAQ:MDB) Q1 Sales Top Estimates, Provides Encouraging Quarterly Guidance


Full Report / July 07, 2022
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Database software company MongoDB (MDB) reported Q1 FY2023 results topping analyst expectations, with revenue up 57.1% year on year to $285.4 million. Guidance for next quarter's revenue was $280.5 million at the midpoint, which is 1.24% above the analyst consensus. MongoDB made a GAAP loss of $77.2 million, down on its loss of $63.9 million, in the same quarter last year.

MongoDB (MDB) Q1 FY2023 Highlights:

  • Revenue: $285.4 million vs analyst estimates of $267.1 million (6.86% beat)
  • EPS (non-GAAP): $0.20 vs analyst estimates of -$0.10 ($0.30 beat)
  • Revenue guidance for Q2 2023 is $280.5 million at the midpoint, above analyst estimates of $277 million
  • The company lifted revenue guidance for the full year, from $1.16 billion to $1.18 billion at the midpoint, a 1.37% increase
  • Free cash flow of $8.44 million, down 49.8% from previous quarter
  • Customers: 35,200, up from 33,000 in previous quarter
  • Gross Margin (GAAP): 72.5%, up from 69.9% 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 $181.6 million, to $285.4 million.

MongoDB Total Revenue

This was another standout quarter with the revenue up a splendid 57.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $18.9 million in Q1, compared to $39.6 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates MongoDB is expecting revenue to grow 41.1% year on year to $280.5 million, in line with the 43.7% 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 30.1% over the next twelve months.

Customer Growth

You can see below that MongoDB reported 35,200 customers at the end of the quarter, an increase of 2,200 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

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 72.5% in Q1.

MongoDB Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the 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's free cash flow came in at $8.44 million in Q1, roughly the same as last year.

MongoDB Free Cash Flow

MongoDB has burned through $6.61 million in cash over the last twelve months, resulting in a negative 0.67% 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 Q1 Results

With a market capitalization of $16.1 billion, more than $1.82 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 exceptional revenue growth MongoDB delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company currently trades at $304 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. Although we have other favorites, we understand the arguments that MongoDB is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its gross margins aren't as good as other tech businesses we look at, the good news is its efficient customer acquisition is better than many similar companies.

MongoDB's price to sales ratio based on the next twelve months is 13.0x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. There are 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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