Categories Analysis, Technology

MongoDB’s disruptive biz model can drive long-term growth. Here’s why

During the three months ended January 2021, revenues climbed 38% from the prior-year period, supported by strong customer wins and subscription growth

Database software developer MongoDB, Inc. (NASDAQ: MDB) is riding the cloud migration spree triggered by the virus outbreak, with data playing a significant role in digital transformation currently. The company, which serves about 25,000 customers in about 100 countries, is yet to generate profit after going public more than three years ago.

Read management/analysts’ comments on MongoDB’s Q4 earnings

Of late, the New York-headquartered tech firm has been witnessing an uptick in the adoption of its solutions. The bottom-line numbers either beat or matched experts’ predictions consistently since the 2017 IPO, and the company ended fiscal 2021 on a positive note.

Mixed Outlook

After climbing to an all-time high early last month, MongoDB’s market value plunged about 30% since then. The stock continued to languish at a three-month low though it made modest gains soon after the company reported stronger-than-expected fourth-quarter results this week. Analysts’ strong buy recommendation indicates that the trend would change in the coming weeks. The stock is probably on track to regain the lost momentum and move closer to the $400-mark. Meanwhile, the high valuation can cause volatility going forward.

Digital Shift

During the three months ended January 2021, the company generated revenues of $171 million, up 38% from the prior-year period and above the consensus forecast. Strong customer wins and subscription growth contributed to the top-line growth. The high demand can be attributed to the increase in the use of software and data during the pandemic when enterprises embraced the digital-first strategy. Adjusted loss widened to $0.33 per share from 0.25 per share last year, but beat the Street view.

In the coming months, the rapid adoption of cloud services and other unfolding opportunities should help MongoDB expedite the much-awaited turnaround, though it did not move any closer to profitability last year. Earlier, the company partnered with Tencent Cloud and extended its tie-up with Google cloud. Its non-relational document model is considered unique and the enterprise migration to cloud has underscored the relevance of the company’s disruptive technology. Also, MongoDB Atlas, the database-as-a-service solution, is doing exceptionally well.

Turnaround Hopes

Creating effective data management solutions for developers is the main challenge facing MongoDB, while shareholders remain concerned about the elusive turnaround. But the reason behind the losing streak is not operational weakness; rather the management has chosen to reinvest in the business and continue innovating. It is worth noting that the company’s open-source solutions are currently facing competition from the likes of Microsoft Corp. (MSFT) and IBM Corp. (IBM).

Managing data is a developer’s most challenging problem and the biggest drain on their productivity. Legacy platforms are not designed for how developers think in code nor are they designed for performance and scale. This problem only gets worse as the data intensity and performance requirements of modern applications increase. Consequently, developers spend an enormous amount of time working around the limitations of existing solutions versus spending time building better applications and user experiences that drive competitive advantage.

Dev Ittycheria, chief executive officer of MongoDB

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Shares of MongoDB traded notably higher during Thursday’s regular trading, after closing the last session down 6%. They have lost about 7% so far this year.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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