MongoDB MDB Q123 results

MongoDB announced their quarterly results this afternoon and it was another pretty outstanding quarter.

https://investors.mongodb.com/news-and-events/news-releases/…

They beat the +47% revenue growth guidance significantly, coming in at +57% in Q1.

Atlas revenue increased +82% and is now 60% of total revenue.

Here’s an update of some of the trending numbers that I posted last quarter.

(reminder that the quarter just ended April 30, 2022 was the first quarter of fiscal 2023)

YOY revenue growth for the past few quarters

Q3 21 +38%
Q4 21 +38%
Q1 22 +39%
Q2 22 +44%
Q3 22 +50%
Q4 22 +56%
Q1 23 +57%

Their guide for Q2 is for +42% on the top end, so it’s unlikely that they’ll continue this growth rate higher again next Q, but I’d certainly be very happy with around +50% quarter in Q2.

and revenue growth sequentially:

Q3 21 +9%
Q4 21 +13%
Q1 22 +6%
Q2 22 +9%
Q3 22 +14%
Q4 22 +17%
Q1 23 +7%

Last year, their sequential growth was lower in Q1 and Q2 as well (actually, the same thing in Q1 and Q2 of fiscal 2021 not shown above but sequential was only +5% and +6% then too, so I believe it is related to some seasonality in the business and could very well trend upward again in Q3 and Q4 later this year, as it has in recent years.

and sequential revenue dollars increases:

Q3 21 +$12m
Q4 21 +$20m
Q1 22 +$10m
Q2 22 +$17m
Q3 22 +$28m
Q4 22 +$39m
Q1 23 +$19m

Again, some seasonaility may be contributing to this trend in Q1

Gross margins are also increasing:

Q3 21 69.4%
Q4 21 70.2%
Q1 22 70.0%
Q2 22 69.5%
Q3 22 69.8%
Q4 22 71.6%
Q1 23 72.6%

This has resulted in a nice trend in gross margin dollars growth YOY vs the same quarter of the previous year:

Q3 21 +18%
Q4 21 +30%
Q1 22 +32%
Q2 22 +32%
Q3 22 +32%
Q4 22 +50%
Q1 23 +50%

Although still not profitable (I believe they expect to turn the corner on profitability next year), they certainly are not bleeding cash, as they again has positive cash flow from operations in Q1.

One of the questions on the analyst calls was about possible M&A. MDB has $1.8 billion of cash on their balance sheet. Management gave a typical response about how they feel they have a long runway of organic growth ahead, but they they proceeded to detail three types of situations where they would consider an acquisition (as a means to bring over strong talent, to move ahead a roadmap project much faster than building in house, etc) but something about the way they answered the question made me think they might be considering potential target(s) already, especially with valuations where they are today. MDB’s raising $900 million in June 2021 when the stock price was around $390/share, while not at the peak, is still looking like a shrewd move to shore up the balance sheet especially given some of the economic uncertainties ahead, and potential to deploy a portion of it an in opportunistic manner if there is a smaller candidate that isn’t in the same kind of liquidity position today.

One thing that has me tempering my enthusiasm slightly for the near term, is I know that MDB seemed to have more headwinds, than tailwinds, during the pandemic, so the possibilty of a weak economy in coming quarters, or possible recession, could slow down their progress a bit again, but with the strong balance sheet, they shouldn’t have any trouble navigating it in the long run. They mentioned on the call one division (I forget which) that saw some weakness specifically in Europe in April (but they later commented that it didn’t decline further in May), but they also said that there was a similar weakness in the same area in the U.S. in May. Despite this, they still were confident enough to guide for +42% growth next quarter, which I suspect they will beat once again.

I really can’t recall the last time I came away from a MongoDB call without enthusiasm about the future and where this company is likely to be 5 years from now (not unlike how I walk away from Trade Desk’s calls). I’m pretty comfortable continuing to keep MDB as an outsized holding in my portfolio.

-mekong

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For MDB, it’s the Atlas growth rate that finally got this board’s attention. Along with DURABLE growth rates. I don’t believe it’s worth a new thread, but I’d also mention that Elastic is another company that has been quietly making a very similar transition. While not in hypergrowth, with overall growth currently in the mid 30%'s, Elastic Cloud saw an increase of 71% year-over-year, or 72% on a constant currency basis. They’ve about reached break-even cash flow with over $800M of cash on the balance sheet.

Elastic is a very sticky solution with plays now also in Security and Monitoring (not just Elastic Search). And they currently are valued at less than 1/3rd that of MDB on a EV/S basis (~5x). Retention rates remain at about 130% with mid teens SBC. If you are looking for DURABLE growth, not just explosive growth, Elastic’s transition under a new CEO to the Cloud looks a bunch like MDB’s transition.

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Agree Mekong - MDB continued their growth re-acceleration and resumed their Atlas penetration with a bump up to 60% having been stuck at 58% for a couple of quarters. Atlas growth rates dropped back from 84% to 80% which is something to watch.

Next quarters guidance doesn’t look so good on an earnings level but they have raised their full year forecast range to straddle a breakeven situation.

Ant

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Next quarters guidance doesn’t look so good on an earnings level

On the call I believe they said something about opex for travel and office expenses forecast to go back to normal in Q2 (after being reduced since early in the pandemic). So it might be more the result of their having the lingering benefit of cost savings in recent periods that won’t go on forever, making the expense comps tough for the next few quarters until they lap them next year, when expense growth will get back to normalized comparisons. They also have the big mongodb world event this month which I believe is the first big in-person event like this that they’ve hosted since before COVID. I’m sure that won’t be cheap to put on.

If I recall correctly, they were cautioning investors on the Q4 call, last quarter, not to expect much in terms of profitability over the next year when asked about it, as they had some unique non recurring impacts in Q4 that helped and wouldn’t be benefiting every quarter. I need to go back to my notes to remind myself what that had specifically related to.

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Hi MF Chips

I had been really disappointed how Elastic growth tailed off and with profitability still out of reach, but I’ve just going through earnings call and clearly they expect re-acceleration based off the Elastic Cloud 70%+ growth becoming a bigger and bigger part of the revenue base.

This is also reflected in their mid term revenue targets of $2bn which will require re-acceleration as highlighted by some of the Analyst Q&A.

Ant

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Was anyone able to catch the updated RPO number for MDB for this quarter?

I can’t find the RPO nor the slide presentation…weird.

Why I added a little during the Conference Call:

Opening comments
Michael Gordon
“…we do anticipate that the current macro slowdown we’re seeing in self-serve and the mid-market and primarily in Europe will eventually impact all geographies and all channels. Simply put, it is our experience and our assumption that it would be inappropriate to think that a macro slowdown would be confined to the low end of the market. However, we also don’t expect that impact will be the same across all channels.”

QnA
Michael Gordon
“ …In terms of looking ahead and trying to apply our best judgment about where do we see things happening in the latter part, the remainder of this year, we’re assuming that self-serve moderation and growth that moved in May from only being in Europe to being in the U.S. We’re assuming that persists. We’re assuming that the mid-market mirrors that behavior in terms of migrating from EMEA to the U.S. and that exhibits that slower growth that we’ve seen in Europe in the mid-market.
And we’re also assuming that the enterprise is not immune to these macroeconomic factors, although it’s – they tend to be not as affected as much. And that’s what leads to the impact on the full year. And so that a little more than 1% sequential headwind on Atlas, that’s about $2 million, when quantified and then given, the compounding of Atlas growth rates, winds up being about 4 million to 5 million of an impact in Q2. And when you add in further compounding and then the broadening, as we’re assuming winds up being about 30 million to 35 million for the full year.”

Question: Karl Keirstead
“Okay. Okay. Great, thanks. Michael, just to put my positive hat on here, you’re absorbing a $30 million, $35 million revenue hit in fiscal 2023, but you raised your full year revenue guidance by $11 million. So that tells me that X the macro impact you’re actually raising by $41 million to $46 million, which is substantially above the Q1 beat and substantially above the full your guidance raise last April quarter. …”

Michael Gordon
“And so again, I think it mostly just speaks to the size of the market, the success that we’re having. I always worry about words like inflection or some of these other things, but we’re seeing real traction in account. And I think about the breadth of use cases, the types of workloads, the mission criticality that were being selected for whether it’s a de-novo application or a migration of an existing application speaks to the traction and success that we’re having in the market. And then overlay that with a lot of just good execution in market and it all adds up to a very positive picture.”

Despite this horrendous re-rating of our companies, I’ve learned here to x-out Macro factors and I also don’t worry about words like inflection! Which is what I see happening for MongoDB’s business, when these factors are taken out of the numbers they just put up.

Best

Jason

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I should have re-read that last post before hitting the send button.

I do weigh what headwinds each company is facing relative to others. I’m not happy that MongoDB and Snowflake are seeing macro headwinds. I do like that Datadog is not.

Regarding Macro-headwinds, These are not usually within company control and when companies such as Mongo and Snowflake are able to grow revenues hand over fist despite this I’m a very happy investor. Despite this horrendous re-rating of our companies, I’ve learned here to x-out Macro factors, as they apply to investing in general.

I also don’t worry about words like inflection! Which is what I see happening for MongoDB’s business, when these factors are taken out of the numbers. This was an opportunity for me to practice ‘buying on the way up’, which is still difficult for me despite my pontificating for Saul’s wisdom to do so- I wrote about this in My May’s Investing Decisions. I sold the bit from Snowflake only because I had to get the money from somewhere and I was already overweight in Snowflake.

Thanks,

Jason

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