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MongoDB (NASDAQ:MDB) Reports Strong Q2, Stock Soars


Full Report / September 02, 2021
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Database software company MongoDB (MDB) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 43.7% year on year to $198.7 million. MongoDB made a GAAP loss of $77.1 million, down on its loss of $64.5 million, in the same quarter last year.

MongoDB (MDB) Q2 FY2022 Highlights:

  • Revenue: $198.7 million vs analyst estimates of $184.1 million (7.9% beat)
  • EPS (non-GAAP): -$1.22 vs analyst estimates of -$0.40
  • Revenue guidance for Q3 2022 is $203 million at the midpoint, above analyst estimates of $198.2 million
  • The company lifted revenue guidance for the full year, from $777.5 million to $808 million at the midpoint, a 3.92% increase
  • Free cash flow was negative $22.6 million, down from positive free cash flow of $8.39 million in previous quarter
  • Customers: 29,000, up from 26,800 in previous quarter
  • Gross Margin (GAAP): 69.4%, in line with previous quarter

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.

There are many types of databases and they each have their tradeoffs and can be useful for different purposes, but the overall need to store data has been growing consistently for many years.

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 very strong over the last year, growing from quarterly revenue of $138.2 million, to $198.7 million.

MongoDB Total Revenue

And unsurprisingly, this was another great quarter for MongoDB with revenue up an absolutely stunning 43.7% year on year. On top of that, revenue increased $17 million quarter on quarter, a very strong improvement on the $10.6 million increase in Q1 2022, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 27.7% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that MongoDB reported 29,000 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, licences, technical support and other necessary running expenses was at 69.4% in Q2.

MongoDB Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

Key Takeaways from MongoDB's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on MongoDB’s balance sheet, but we note that with a market capitalization of $25.4 billion and more than $1.81 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly MongoDB outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 7.13% on the results and currently trades at $431 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 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, and its cash burn means its business isn't yet sustainable.

The market is certainly expecting long term growth from MongoDB given its price to sales ratio based on the next twelve months is 28.5. 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 it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.

The Wall St analysts covering the company had a one year price target of $382.4 per share right before these results, implying that they didn't see much short-term potential in the MongoDB.

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