MongoDB Earnings: Execution and Macro to Blame for Lower Guide; Shares Undervalued

No-moat MongoDB’s first-quarter results topped expectations, but a slower start to Atlas consumption growth and new workload wins led to an outlook cut for the year. Management blames the slow Atlas start on a mismatch in the macroeconomic reality versus their previous expectations and execution in its new businesses. Like several other data platforms, MongoDB is susceptible to the volatility of a consumption-based model (in its Atlas business), which amplifies the market’s reactions to negative news compared with other software firms. However, we reiterate our belief that switching costs should moderate any consumption-based concerns in the long run. MongoDB software is sticky, in our view, due to the vast intricacies involved in integrating database solutions and the risks involved in a botched integration. Our thesis will only become more apparent as MongoDB workloads shift to a lesser percentage of experimental workloads over time. However, acknowledging the proportion of experimental workloads at this time, we are lowering our fair value estimate for MongoDB shares to $330 from $370 per share. Shares are down a whopping 26% afterhours, leaving the stock undervalued.