MongoDB Earnings: Stellar Results Thanks to Enterprise Strength

Key Morningstar Metrics for MongoDB

• Fair Value Estimate: $403.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of MongoDB’s Earnings

MongoDB’s MDB third-quarter results were stellar, coming in well above our estimates and the FactSet consensus as enterprise revenue exceeded expectations, partially thanks to higher volumes in multiyear deals. In our view, momentum indicates just how strong demand is for MongoDB’s capabilities, from its core document-based database (which we believe excels because it is easy to use) to newer features like AI-generated code.

Such strength led the firm to raise its outlook for the year. Despite the excellent quarter, the market reacted poorly, with shares dropping about 6%. The mismatch resulted from several words of caution from management, which highlighted near-term headwinds the firm is facing in the name of long-term rewards. We believe the firm’s investments and mix shifts will indeed benefit it in the long run, letting it reap more value from the seedlings of strong switching costs throughout the business. As a result, we are increasing our fair value estimate for MongoDB to $403 per share from $379. Shares traded near $409 per share after-hours, and this leaves the stock within 3-star, fairly valued territory.

Third-quarter revenue increased 30% year over year to $433 million, thanks to the popularity of Enterprise Advanced multiyear deals. Non-GAAP operating margin expansion was significant in the quarter, with margins at 18% compared with 6% in the prior-year period. However, management emphasized that this was actually a higher margin expansion than it wanted, given the opportunities the firm faces, which merits robust investment in the near term.

We expect that MongoDB’s margin expansion will slow down in fiscal 2025 as a result of conscious spending by the firm and the increasing mix shift of Atlas’ revenue, which should be dilutive to margins. Nonetheless, we think these are wise moves for the long term.