MongoDB Earnings: Less Stress on Upfront Revenue Opens Door to More Customers; Shares Fairly Valued

MongoDB MDB posted a solid quarter, exceeding our expectations all around as consumption of the firm’s cloud platform, Atlas, proved rosier even with it feeling the effects of the weak macroeconomic environment. With retention rates remaining high, we continue to believe MongoDB has all the right seeds of a switching cost moat that will pay off in the long run. We are maintaining our fair value estimate of $379 per share, as we remain confident in MongoDB’s positioning at the right place and the right time amid a mass data boom that will require the technical flexibility and ease of use MongoDB is known for. With afterhours shares trading near $398, up 4%, we view shares as fairly valued.

Second-quarter revenue increased 40% year over year, to $424 million. Atlas, MongoDB’s cloud offering, grew 38% year over year, now making up 63% of revenue. Atlas’ performance slightly surpassed management’s expectations in the quarter. We like that MongoDB has further lessened incentives to sign customer commitments upfront for Atlas, as we think this is showing flexibility in the current macroeconomic environment that can ensure MongoDB doesn’t miss out on acquiring sticky long-term customers who have tighter wallets in the near term. Enterprise Advanced and other licensing revenue exceeded management’s expectations on a meatier scale than the Atlas business as the firm signed more multiyear deals than they were baking in and signed renewals with large customers like Alibaba. Nonetheless, management doesn’t expect the back half of the year to mirror the first half in terms of the positive surprise in licensing revenue.

Second-quarter non-GAAP gross margins were 78%, up by 5 points from the prior-year period, thanks to the surprise outperformance by high-margin licensing and Enterprise Advanced revenue. But the firm warned that the profitability likely won’t be repeated since it was a result of anomalous strength. Non-GAAP earnings per share were $0.93.