MongoDB (MDB) has what it takes to end the losing streak. Here’s why

An innovative product portfolio that is capable of outshining the legacy databases has helped MongoDB (NASDAQ: MDB) stay largely unaffected by the market turmoil so far. Of late, the database software company has been generating sufficient cash to offset its growing debt.

What needs to be seen is whether the favorable liquidity position would allow the company to pursue its growth goals — through measures like the promotion of MongoDB Atlas, product revamp, and global expansion. Meanwhile, the deepening recessionary trend has cast a shadow over the plan, at least in the near future.

Turnaround Overdue

The market is probably impressed by the strong balance sheet, but the elusive profit remains a drag on sentiment. Nevertheless, the recent financial performance was not without bright spots – the bottom-line beat the market’s forecast consistently, giving fresh hopes of a turnaround, though the company remained in a loss in the past several quarters.

The market will be keen to know how the COVID-linked uncertainties are going to influence the company’s finances in the coming months. At the next earnings conference call, MongoDB’s executives might share their views on the matter, considering the growing relevance of IT and cloud-related services during the ongoing crisis.

Unique Model

With digital transformation gaining steam in the business world, companies would need modern database products specifically designed for cloud, which is what MongoDB is specialized in. The document-based architecture and combination of relational and non-relational databases make the company unique and gives it an edge over rivals. When it comes to future product launches, the management will be looking to repeat the success it achieved in the case of Atlas. The key to maintaining sales growth is to invest heavily in marketing activities and win more enterprise customers, highlighting the process-oriented and data-driven model.

“Our customers are more determined than ever to proceed with our digital transformation efforts. Businesses of all kinds, even the most technology cautious recognize their futures powered by software. Consequently, they need to continue to invest in their digital future despite the near-term economic uncertainty.”

Dev Ittycheria, Chief Executive Officer of MongoDB

Booming Market

Experts predict that the data-management software market is poised to grow to $71 billion by year-end and continue to expand in the coming years. Since the market is ruled by legacy database providers even decades after the first system was launched, the situation offers a huge opportunity for modern alternatives like MongoDB, which according to the management is ‘built by developers for developers.’

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The market is witnessing an influx of new players, prompting the companies to adopt measures to retain market share. Competing with biggies like IBM (IBM), Oracle (ORCL), and Microsoft (MSFT) is an uphill task due to the size of their businesses. Also, there are seasonal factors influencing the business, which often lead to inconsistency in quarterly financial performance, and persistent threat from providers of open software solutions.

Subscription Power

It is equally challenging to retain subscriptions, the main revenue source, as customers tend to withhold renewals when conditions are not very favorable. On the other hand, the steady uptick in revenue performance in recent quarters is putting pressure on the management to maintain the positive trend.

MongoDB is an attractive stock and investors who are prepared to take risks will definitely go for it. But if you want to play safe, it is better to wait to see how the coronavirus situation evolves – remember that the company is not making profit. Also, MongoDB does not pay dividends and might not do so in the near future, given the need to preserve liquidity. The current target price points to a moderate uptick in value, which also justifies the ‘moderate buy’ tag.

Steady Customer Growth

The company had more than 18,400 customers at the end of April 2020, which is higher by 30% compared to the same period of last year. In the April-quarter, the loss narrowed to $0.13 per share aided by a 46% growth in revenues to $130.33 million. It ended the quarter with a cash balance of about $1 billion.

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MongoDB has been one of the best-performing stocks, setting new records regularly. Interestingly, the market selloff had a minimal impact on the stock, which overcame the slump pretty quickly and reached a record high last month. The shares are up 65% since the beginning of the year.