Is MongoDB a buy right now?

Author: Aditya Raghunath

Estimated read time: 4 minutes

Publication date: 7th Aug 2020 11:42 GMT+1


In the age of cloud storage, conventional database storage has somewhat taken a backseat. Founded in 2007, MongoDB (NASDAQ: MDB), is a database software designed by the cloud that was formed to address the concerns of the legacy databases that still operate on a column and row structure.

Such a structure is no longer relevant as data has become much more complex and voluminous. The need of the hour is fast-performing unique cloud-based solutions, and this is where MongoDB perfectly fits in. The company has two key divisions: MongoDB Enterprise Advanced (EA), its on-premise solution, and its cloud-based offering, Atlas.

One of the most differentiating factors of MongoDB is the fact that it is completely application-developer centric. The company understands that it is these developers who influence the decisions of the big IT companies. Thus, its marketing efforts has always been directed towards the developers.

Let us look at the key factors why MongoDB has a bright future ahead:

 

A massive addressable market to tap

Database management has a huge market and is predicted to expand manifold in the near future. Thus, MongoDB is well-poised to reap its benefits. In the Q4 results earnings call, it’s President and CEO Dev Ittycheria highlighted IDC's projections.

According to IDC, in 2020, the database management market is at $71 billion which will expand to $97 billion by 2023. 

 

Remarkable topline growth for the past three years

MongoDB has seen stupendous growth over the last three years to be precise. This period has been particularly crucial for the company in terms of revenue growth. Between fiscal 2017 and fiscal 2020, MongoDB’s operating revenue soared at a CAGR (compound annual growth rate) of nearly 61%. 

This growth run continues even to this date. Its Q4 results, MongoDB posted a 44% year-on-year growth in its revenue. The company’s cash position at $977 million at the end of the quarter shows that the company has the cushion to finance its growth and survive in highly uncertain times like these. MongoDB also has considerable amount of debt. However, most of it is convertible by nature.

 

Atlas a key growth engine

It won’t be wrong to say that the Atlas business segment has single-handedly transformed MongoDB’s fortune. Atlas contributes nearly 41% of the company’s revenue, and has surged more than 80% in the recent quarter.

The product’s customer base expanded exponentially to reach nearly 16,000 for the quarter ended April. MongoDB’s Enterprise Advanced product, its on-premise offering, usually clocks in more than $100,000 per customer annually. However, considering the growth of Atlas, it might soon overtake EA as the core product of MongoDB.

 

Strong business despite lack of profitability

However, one of the biggest caveats for investors is that MongoDB isn’t profitable. In fact, its losses are consistently expanding. In Q4, its losses have expanded more than 30%. The stock is also expensive in terms of valuation, especially considering company’s expanding losses.

Moreover, there is growing competition to address as the company is open-source. MongoDB faces competition from tech behemoths like Amazon (NASDAQ: AMZN), IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) in this highly space.

To strengthen its position, MongoDB has also appointed Mark Porter, as its Chief Technology Officer in June 2020. Porter is a database expert with over three decades of experience. He has previously worked with Amazon and Oracle. 

The COVID-19 induced recession has put brakes on the IT spending of enterprises. Thus, the company has lowered its revenue projection for the coming fiscal and expects an annual growth in the range of 21% to 26%.

 

A smart tech stock for the portfolio

With just thirteen years into the business, MongoDB has a huge market to tap and a robust following among its developer base. The first half of 2020 has been a roller-coaster ride for MongoDB stock.

Between February and March, the company lost more than 45% in market value. However, it has since made a massive comeback and the stock has more than doubled. Year-to-date, MongoDB has surged nearly 62% in 2020 easily outperforming the S&P 500 and NASDAQ, making it one of the better performing tech stocks of this year.

In a nutshell, MongoDB has immense potential as a business and the fact that it isn’t profitable shouldn’t deter investors from adding the stock to their portfolio. Investors must consider the explosive growth it has seen and the industry projections for the future.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.