MongoDB Earnings: Excellent Revenue Growth, but Outlook a Bit Light

Key Morningstar Metrics for MongoDB

• Fair Value Estimate: $290.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of MongoDB’s Earnings

MongoDB MDB reported excellent fiscal third-quarter results, easily beating FactSet consensus revenue estimates by 6% and prior guidance by 7%, while roughly doubling the quarter’s non-GAAP earnings per share guidance ($1.33 actual vs. $0.65-$0.68). Management increased its full-year revenue and non-GAAP EPS outlook, but we felt the increases here were light. As we transfer coverage to a new analyst and update our projections, we are decreasing our fair value estimate to $290 per share from $330 as we factor in less confidence in growth in the outer years of our forecast. While this quarter’s results were solid, we believe the infrastructure software space remains competitive, and pressure on growth could emerge in the coming quarters.

Growth was undoubtedly strong, as revenue grew 11% sequentially after decelerating in the previous two quarters. We believe this is the type of growth MongoDB will need to maintain for at least several more years (5% or more sequential growth and 20% or more yearly growth) to justify its valuation. We remain worried that this growth rate could decelerate again. Management’s commentary on Atlas-specific revenue indicated it was close to being in line with management’s expectations and is expected to decelerate next quarter. In contrast, most of the current quarter’s outperformance was driven by several large non-Atlas (enterprise advanced) multiyear deals, in which term license revenue is recognized at signing.

This large-deal revenue is expected to decline next quarter, suggesting demand was pulled forward due to timing. To MongoDB’s credit, customer growth and annual spending of over $100,000 reaccelerated. Even so, we thought the next quarter’s guide was a bit weak, considering how strong current results were, and we remain worried that further deceleration in growth could lead to a reduction in the stock’s valuation.