What Happened:
Shares of database software company MongoDB (MDB) fell 13.9% in the morning session after the company reported fourth-quarter results and provided revenue guidance for the next quarter and full year, which fell below Wall Street's expectations, suggesting a slowdown in demand. In addition, while free cash flow was positive, it came in below expectations. It is important to note that the topline guidance reflected tough comps, with MongoDB expected to recognize close to zero revenue from unused Atlas commitments in FY'25 ( vs. over $40 million in FY'24).
Similarly, the profitability outlook was also underwhelming, with non-GAAP operating income projections for the next quarter and full year falling below expectations. Margins are expected to be impacted by an acceleration in hiring as the company highlighted slow capacity expansion in FY'24, especially in the first half due to macro uncertainty.
On the other hand, MongoDB exceeded analysts' revenue expectations. Overall, this was a mixed but weaker quarter for MongoDB.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy MongoDB? Access our full analysis report here, it's free.
What is the market telling us:
MongoDB's shares are very volatile and over the last year have had 25 moves greater than 5%. But moves this big are very rare even for MongoDB and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 3 days ago, when the stock dropped 8.4% as stocks declined, with investors likely taking profits. The Nasdaq fell 1.6%, while the S&P 500 was down 0.9%. Some of the big tech names felt the heat, with Tesla, Netflix, and Microsoft all declining by more than 2%. Notably, iPhone manufacturer Apple was also down nearly 3% following a research report by Counterpoint that suggested a decline in iPhone sales in China in the first six weeks of the year. The weak demand report could signal that the purchasing power of consumers in the region is weakening. Otherwise, we have found no other fundamental or rate-related reasons explaining the broad market decline.
It was a week packed with information for investors to digest. Fed Chair Jerome Powell gave updates to Congress on March 6th and 7th, 2024, about the current monetary outlook, recent policy actions, and progress toward bringing inflation back down. Finally, on March 8th, the Bureau of Labor Statistics reported nonfarm payrolls for the month of February.
The insight gleaned from the economic data and updates during the week could inform the market's outlook on equities and other assets for better or worse. Investors expect the Fed to begin cutting rates this year, with the expectation of the first rate cut as early as the first half of the year.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
MongoDB is up 0.2% since the beginning of the year, but at $384.67 per share it is still trading 23.2% below its 52-week high of $500.90 from February 2024. Investors who bought $1,000 worth of MongoDB's shares 5 years ago would now be looking at an investment worth $3,852.
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