MongoDB Exceeds Profit Expectations and Raises Outlook

by Warren Seah

MongoDB, the cloud-based database firm, has exceeded Wall Street’s profit expectations and raised its financial outlook for the year following the signing of several multiyear licensing agreements. The company’s stock experienced an early rise in response to these positive developments.

However, despite these achievements, concerns have been raised about the impact of weak economic conditions and reduced customer spending on MongoDB’s Atlas service. Howard Ma, an analyst at Guggenheim, reiterated his Sell rating on the stock due to these factors.

In the second quarter, which ended in July, MongoDB reported adjusted earnings per share of 93 cents, surpassing the analyst consensus of 46 cents as listed on FactSet. Additionally, the company’s revenue of $423.8 million surpassed the estimated $393.7 million and even exceeded management’s own guidance.

Michael Lawrence Gordon, MongoDB’s Chief Financial Officer, attributed this outperformance to a higher number of multiyear licensing deals than initially anticipated. Notably, the company secured a significant deal with the Chinese multinational Alibaba Group Holding. However, Gordon emphasized that this level of success is unlikely to be repeated going forward, as licensing revenue consists of a substantial upfront portion and is characterized by very high margins.

Despite this note of caution, MongoDB’s stock experienced a 4.9% increase to $399.99 during premarket trading on Friday. Impressively, the shares have already climbed 94% in 2023, as of Thursday’s closing.

MongoDB Reports Strong Profit Outlook

MongoDB has raised its adjusted earnings per share expectation for the fiscal year ending in January, impressing investors and analysts alike. The company now expects to achieve between $2.27 and $2.35 per share, up from the previous estimate of $1.42 to $1.56 per share. Analysts were originally predicting the company to raise it to $1.59 per share, so this is a significant improvement.

According to Guggenheim analyst Ma, MongoDB’s latest report showcases a “beat and raise model” for companies, earning them high praise. However, Ma did not change his Sell rating on the stock due to management’s caution regarding consumption growth. This refers to revenue generated from pay-as-you-go pricing models rather than standard licensing.

Another concern for the company is the impact of weak economic conditions and reduced customer spending on their multi-cloud database service, Atlas. Revenue for Atlas will likely continue to be affected throughout fiscal 2024, according to Gordon.

Ma highlighted that the macro slowdown poses a risk to the company’s projected more than 30% revenue growth in fiscal 2025, which is currently factored into MongoDB’s valuation. Nevertheless, he increased his target price for the stock from $220 to $250.

Despite Ma’s reservations, most analysts disagree with his Sell rating, with 21 out of 28 analysts recommending MongoDB’s stock as a Buy.

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