MongoDB: Give Me All Your Workloads

Hey friends,

In 5 (maybe 10) minutes you’ll walk away with a solid understanding of MDB’s current valuation + analyst expectations and with an update from management’s latest commentary at investor conferences in early June.

Disclosure: I have a $5,445 position in MongoDB in the $10k to $1 million portfolio that I intend to hold for a very, very long time.

A lot of people ask so…I use M1 Finance for my brokerage, checking, and credit card. I’m extremely happy with them. Here’s a link to check them out.

My thoughts on MDB’s current valuation

The stock has recovered quite a bit recently but is still down 46% from its high on 11/12/2021 of $566 a share. At that time, the price to sales multiple was 44 which is just insane.

Now it trades at roughly $305/sh and a Blended P/S of 20 which is high, but much more reasonable when considering MDB’s market opportunity and growth expectations.

From 2017 to 2022, revenue grew from $115 million to $873 million and gross profit grew from $85 million to $614 million. That’s a 7.5x increase in revenue with gross margins declining from 74% to 70%. This sounds concerning, but MDB Atlas, their managed database service has lower margins, but it’s growing 80% YoY and now makes up 60% of MDB’s total revenue.

Although MDB is not profitable, the results show that the business is becoming more efficient at scale, while still growing 48% YoY. Operating margins have improved from -60% to -33% from 2017 to 2022.

Analysts expect FY 23 revenue of 1.19B, FY 24 revenue of $1.56B, and FY 25 revenue of $2.04B giving MDB are FY25 P/S ratio of 10.14.

The IDC expects the database management market to be $123 billion in 2025 meaning MDB would have less than 2% market share at that time so there’s plenty of runway ahead if management executes well which is something I will continue to monitor.

A Primer on MDB’s Market & Relational vs Document-style Databases

There was nothing ground-breaking announced, but it’s clear management is very focused on clarifying the difference between the managed database market and other software markets.

MongoDB is very focused on slowly gobbling up more workloads from more customers. With software in the Customer Relationship Management (CRM) or Employee Resource Planning (ERP) markets, customers will traditionally only use one vendor.

However, with databases, every application a customer builds or uses needs its own database so customers generally use multiple database providers, especially if they are slowly transitioning from legacy database infrastructure from Oracle to MongoDB.

Thank you for reading Growth Curve By Austin Lieberman. This post is public so feel free to share it.

Here’s a good reference for the types of companies that use MDB in various industries. If you think about each of these examples, you can probably think of applications you’ve used that are leveraging MDB (grocery delivery, real estate search, insurance, social networks, etc).

Management Commentary from June 08 and June 09 Conferences

Question: As we think about easing the process over the last 5 years, how has the application that a customer has written on top of Mongo evolved?

Answer: I think one of the things that's really changed, particularly with Atlas, which is our managed offering our Database as a Service product, really the core of the developer data platform. Atlas is now 60% of revenue.

Atlas started off as either cloud-native applications or just sort of smaller, less strategic applications. What we've seen over time is that that's been like a little mini microcosm of the MongoDB trajectory where there were sort of initial apps or you're trying to experiment with something you understand that relational has got a problem, but you're not going to take your most critical, most strategic application and migrated off of Oracle or Sybase or DB2 or whatever it's on, you're going to start with a lower risk application.

And what we've seen over the last many years now is just the dramatic increase in the number of core mission-critical applications that are running on MongoDB, whether that be on Atlas, in the cloud, or whether that be in a self-managed environment, so you think about critical telco applications, utility billing applications and banking transaction applications, etc.

Question: Can you explain the difference between your two products, MongoDB Atlas and Enterprise Advanced?

Answer: Ultimately, what determines whether a customer picks Atlas or managed offering or whether they're taking enterprise advanced and managing it themselves, whether they're managing it in the cloud or on-premises is really just where are they in their own public cloud journey and public cloud adoption. If you're just starting to adopt MongoDB now, you're probably either a new company or sort of pretty far along in your public cloud adoption and so you'd probably just start with Atlas.

Atlas includes the underlying storage and compute. And you may want to talk about margins later, but just to sort of give people the broad picture, and so therefore, it's a lower-margin product. We've made a lot of progress on the margin front. And so that difference has narrowed significantly.

Question: Can you talk about the slowing growth in Europe you mentioned on the last earnings call?

Answer: What we saw was in self-serve and in mid-market primarily in Europe in Q1 towards the end of Q1, slower-than-normal growth of existing applications. And we see it that the applications themselves are growing more slowly, and therefore, the spend of customers with us is growing more slowly. It is very broad-based across every subregion in Europe and industries. And so therefore, it's a macro phenomenon. And so we saw that in Q1, again, in primarily in Europe, self-serve and mid-market. We also saw it in self-serve in the U.S. in May. And because we believe it's a macro slowdown because it's starting sort of where you would expect it to start, which is at the low end of the market. We wanted to be transparent with investors and frankly get into the month-to-month details, which we usually don't do, but these are unusual times, and this is important. And then we use that as sort of the data as well as our prior experience to sort of form a macro framework and then we use to apply to our guidance and how we think about the rest of the year.

Question: Can you explain the competition/partnership dynamic with the large cloud providers (Google, Microsoft, and AWS)?

Answer: I think we're at an exceptionally strong point in our different relationships with the cloud players. I think that they act certainly much more as partners than they do as competitors, not to suggest that there's not a competitive angle because, of course, there is with each of the 3. They've ultimately realized that sort of partnering is most effective.

When we're head-to-head with those players. Our win rates are exceptionally high. And ultimately, I think everyone came to a grade that their battles more with each other than with us.

Google was very kind of proactive in identifying the opportunity to differentiate and pick best-of-breed solutions. And so they were 1 of the first to sort of say, "Hey, we're not going to create an imitation offering. We want to give our customers the real deal, the authentic product. "

Amazon, an intense competitor, but also, I think, did a good reasonably pragmatic about things. And I think they've seen the success we've had and we don't hear a lot about document DB as much as we did a few years ago, and they've been great partners on the go-to-market side, on the technical partnership side, and that's been great to watch the evolution of that relationship.

Microsoft, probably somewhere more in the middle, clearly has a competing offering. We're working to improve the collaboration and the efficacy kind of in market on the go-to-market side