MongoDB

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

MongoDB is a modern database platform, designed to empower developers to build and innovate applications, offering both a cloud-based and on-premise deployment option.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

MongoDB (MDB) is a leading modern, general-purpose database platform designed for developers to build applications. The company’s platform is designed to allow organizations of all sizes to create, modify, and expand applications easily and efficiently. Founded in 2007, MongoDB has quickly gained popularity as businesses seek to leverage data in more agile and adaptable ways.

  • Revenue Streams: Primarily subscription revenue (over 95%) from their platform, with relatively minor contributions from services (including consulting, training and support)
  • Industry Trends: The database market is undergoing rapid evolution, with a move towards more flexible and scalable solutions. Cloud-based database services and managed infrastructure are growing areas. Enterprises are looking for solutions that can provide robust functionality, manage growing volumes of data and reduce cost.
  • Competitive Landscape: The database market is highly competitive, with a few major players like Oracle, IBM, and Microsoft. Alongside the incumbents, there are also cloud-based database providers like AWS, Google, and Microsoft Azure. These companies are all vying for market share through new technology offerings, pricing and performance.
  • What Makes MongoDB Different: MongoDB distinguishes itself through its document database model that offers more flexibility and agility than traditional relational databases. MongoDB’s platform is designed with developers in mind, with its ease of use and scalability.

Financials

Key Performance Indicators:

  • Revenue: MongoDB has consistently shown strong revenue growth, driven by the company’s growing popularity and adoption of its solutions. For fiscal year 2024, the company’s revenue was $1.68 billion, representing a 21.3% increase year-over-year.

  • Gross Profit: Gross profit margin of 73.3% in fiscal year 2024, with gross margin of 73.5% in FY23. Indicating strong profitability on a core product. However, gross margins appear to be under a slight downward pressure in 2024 when compared to 2023.

  • Operating Income/Loss: The company is still operating at a loss. The net loss for fiscal year 2024 was $525.5 million, an increase from $352.6 million in 2023 due to operating and other expenses.
  • Net Loss per Share: The net loss per share, diluted, has increased to ($8.44), compared to ($5.92) in 2023 and $(4.43) in 2022, due to increased net loss.
  • Free Cash Flow: The company generated $146.7 million of positive operating cash flow which is reduced by $75.4 million of capital expenditures for the fiscal year 2024, totaling a free cash flow of 71.3 million. This is a major improvement compared to prior periods.

Revenue Distribution (Geographically):

  • Americas: A large market for the company with revenue increasing to $818 million in FY24, compared to $687.6 million in FY23.
  • EMEA: Also shows good results in growth, generating a revenue of $440.1 in FY24, compare to $344 million in FY23.
  • Asia Pacific: The weakest segment where growth continues at a slower pace with revenues of $352.9 million in FY24, compared to $302 million in FY23.

Financial Health:

  • The company’s current ratio (current assets to current liabilities) was 2.4, providing a good sign of their liquidity to handle short-term commitments.
  • A reasonable long term debt as a percentage of assets. However, it is still concerning that there is an operating and a net loss. If revenue does not pick up soon, this could be a long term concern.

Moat Analysis: 3 / 5

MongoDB has created a narrow moat, mainly through customer lock-in, switching costs, and some brand recognition.

  • Network Effects: While MongoDB’s value doesn’t increase directly with the number of users, its popularity and the wide developer community (which results from higher users) creates a network effect that enhances its ecosystem and makes it a preferred choice for many developers.
  • Switching Costs: The integration of MongoDB into existing applications creates a switching cost. Customers are less likely to move to new platforms because it would result in large modifications and development changes, making it difficult to transition to a competitor.
  • Intangible Assets: MongoDB has a well-known brand and has become a standard in document-oriented databases, helping it attract new customers and partners. This allows it to charge a premium price for its products.
  • Cost Advantages: While MongoDB does have a cost advantage as a cloud database provider compared to on premise models, other similar competitors also enjoy similar benefits. And so this doesn’t constitute a strong competitive advantage.

Risks to the Moat:

  • Open Source Alternatives: There are several open-source alternatives that are constantly improving and may become a considerable alternative for companies that are more budget-conscious.
  • Intense Competition: The competition for cloud database solutions is high, and as such is a considerable risk. Large players like AWS and Microsoft have a lot more resources and are in heavy competition, and could very well disrupt MongoDB’s growth.
  • Pricing Pressure: As the cloud market matures, companies may face price pressure as users seek out the cheapest options. This could impact profitability.
  • Maturity and the need for new products: As companies mature, often the pace of innovation and the growth in sales slow. Therefore MongoDB needs to keep up with the innovation and keep pushing new offerings for more customers.

Business Resilience:

  • The subscription-based nature of MongoDB’s revenue provides a stable and predictable revenue stream, allowing the company to withstand any potential fluctuations in demand.
  • The company’s focus on developers has created a loyal user base, which is unlikely to switch platforms even if better alternatives exist, unless they are significantly cheaper.
  • The company has a growing market share and is rapidly becoming a key player in the database sector, making the business more resilient to outside forces.

Understandability Rating: 3/5

MongoDB’s core business model is easy to grasp. However, the platform itself is quite technical and may not be entirely familiar to those that do not have a strong technical background. The nuances of its pricing models, financial terms and the effects of economic situations are difficult to grasp. Therefore it earns a 3 out of 5.

Balance Sheet Health: 4/5

MongoDB has a decent balance sheet. Though operating and net losses do not inspire confidence, the assets and liabilities are in a strong position with low long-term debts and a reasonable current ratio, as mentioned before, indicating the company can easily cover its short-term debts. The company’s growing cash reserves make it fairly stable to ride a downturn if one should come. Therefore, it earns a 4 out of 5.

Recent Concerns/Controversies/Problems:

  • Slowing Growth: The company has experienced a slight slow-down in revenue growth recently, which is a cause for concern. However, management has insisted that growth is still strong and sustainable. This is mainly due to market conditions.
  • Operating and Net Losses: While the company has experienced high revenue growth, its operating and net loss has also grown at the same time. This implies that the company will need to work on cost cutting to be profitable in the long term.

Management’s View: The management is optimistic about the company’s future and have given high-single-digit growth guidance. They have also stressed the company’s capability to achieve profitability by reducing costs and focusing on high-value clients. The company is also heavily focused on research and development to further enhance the platform. They note that the cloud market as a whole is facing pressure due to current macroeconomic conditions and this is the major reason for declining growth rates. But, also claim that companies are still moving their operations to cloud-based architecture and MongoDB is still a premier choice for these companies. They remain focused on getting more subscription customers and continuing to innovate. The main goal is on profitability, instead of heavy growth in the short term.

Despite the headwinds, the company has remained bullish about long-term growth and profitability. They believe that current economic conditions are temporary and they are focused on expanding into newer, untouched sectors, like AI and other machine learning products.