MongoDB Earnings: Slashing Valuation as Execution and Macro to Blame for Lower Guidance

Key Morningstar Metrics for MongoDB MDB

• Fair Value Estimate: $330.00
• Morningstar Rating: 3 stars
• Economic Moat: None
• Morningstar Uncertainty Rating: High

What We Thought of MongoDB’s Earnings

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.

First-quarter revenue increased 22% year over year to $451 million. The result was above the high end of management’s guidance, with enterprise strength partially to thank. In contrast, MongoDB’s Atlas business saw soft platform consumption across sectors, geographies, and customer tenure, implying an overall weaker macroeconomic environment was to blame. Non-GAAP operating margins contracted less than management had expected (due to revenue outperformance), coming in at 7% compared with 12% in the prior-year period.