What Happened:
Shares of database software company MongoDB (MDB) fell 8.7% in the morning session after the company reported third quarter results with calculated billings (revenue + change in deferred revenue) falling below Wall Street's expectations. Customer count also missed, and growth of this key metric slowed. On the other hand, revenue exceeded expectations during the quarter. Looking ahead, next quarter and full year revenue and non-GAAP operating income guidance came in higher than Wall Street's estimates. However, management guided for a seasonal impact on consumption growth in the Atlas segment (roughly 2/3 of overall revenue) around the holidays. Additionally, the projection of a sequential decline in non-Atlas revenues deviates from the typical Q4 uptick.
Overall, the quarter was mixed, and the commentary on near-term growth outlook may raise concerns among investors. Here is an example of a stock that is performing quite well on an absolute basis but given its high valuation multiple (a proxy for high expectations), must put up very impressive quarters with no warts to get the market excited and the stock up.
Following the results, Monness, Crespi, Hardt analyst Brian White noted, "The tone of the call was less upbeat than past gatherings with MongoDB highlighting upside in Enterprise Advanced and inline cloud performance for Atlas."
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 32 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 29 days ago, when the company gained 5.4% following the earnings announcement from another prominent cloud provider, Datadog. Importantly, both Datadog and MongoDB feature consumption-based models where customers are not locked into long-term contracts but instead can scale their consumption of the products and features almost real-time. This means that during good times when demand is high, revenue can grow faster than if the company goes to market with a contract model. On the other hand though, if times are tough or if competition is increasing, customers can scale down usage and revenue will see headwinds faster than if the company goes to market with a contract model.
Datadog reported third-quarter earnings that blew past Wall Street's expectations, highlighting the growing demand. It also shows that enterprise customers are not pulling back on spend due to reasons such as cost cuts or workforce reductions. Notably, Datadog recorded a significant improvement in new large contract wins, illustrating that even some of the largest corporations are still early in their cloud adoption journey.
MongoDB is up 111% since the beginning of the year, and at $403.54 per share it is trading close to its 52-week high of $435.23 from November 2023. Investors who bought $1,000 worth of MongoDB's shares 5 years ago would now be looking at an investment worth $4,445.
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