What awaits MongoDB (MDB) after the much-awaited turnaround?

MongoDB, Inc. (NASDAQ: MDB), the tech firm that pioneered a new method for creating databases, enables developers to work with high volumes of varied data effortlessly. The company this week brought cheer to shareholders by reporting its first quarterly profit, ending a losing streak that began four years ago.

The encouraging results came as a morale booster for the software and cloud market, which is going through a rough patch amid economic uncertainties and cautious enterprise spending. The company’s stock made strong gains following the earnings report, rising more than 25% in a single day. After falling to a two-and-half-year low las month, MDB had bounced back but remained volatile.

Buy MDB?

Experts are quite optimistic about the stock’s long-term prospects, with the consensus target price indicating a 40% growth annually. So, it makes sense not to ignore the buying opportunity that currently exists, especially given the highly favorable valuation. Even after the recent gains, the stock is still cheap.

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Read management/analysts’ comments on quarterly reports

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The company mainly operates through third-party cloud providers. That, combined with aggressive spending on customer acquisition, has been a drag on margins. The resultant increase in net losses explains the stock’s poor performance so far, with the price more than halving this year. 

MongoDB’s disruptive business model gives it an edge over peers, and the managed database service is growing rapidly, contributing significantly to revenue growth. Its Atlas database is touted as a unique multi-cloud developer data platform capable of simplifying and accelerating database management. Of late, there has been a marked uptick in the adoption of Atlas.

Financials

Though the bottom line remained in the negative territory since the company’s stock market debut a few years ago, all along it performed much better than widely expected. For the third quarter, MongoDB reported earnings of $0.23 per share on an adjusted basis, marking a significant improvement from the past quarters, and the comparable period of last year when it had incurred a loss of $0.17 per share.

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Snowflake appears to be on solid footing despite cloud slowdown

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The improvement reflects a 47% jump in revenues to $333.6 million. The latest numbers also came in above the consensus forecast. There was a two-thirds growth in revenues from Atlas, which accounted for about 63% of the total Q3 revenue. At the end of the quarter, the company had around 39,100 customers. Anticipating the positive momentum to extend into the remainder of the fiscal year, especially with regard to Atlas consumption, MongoDB executives raised their full-year earnings and revenue outlook.

From MongoDB’s Q3 2023 earnings conference call:

“We’re really hyper-focused on acquiring new customers and adding more workloads from existing customers, and that’s across the board, across every channel, every industry, and every customer segment. So, that is something that we care a lot about, and we’re seeing that now expand in terms of getting customers now to adopt some of the new capabilities we rolled out to the marketplace.”

Despite the post-earnings rise, MDB is still trading well below its 53-week average. The stock made modest gains early Thursday, after closing the previous session up by a whopping 23%.