A comparison I felt compelled to make

Investment Analysis Clubs Saul’s Investing Discussions
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The contrast between these two earnings reports was so astounding that I felt that I HAD to say something! I just felt compelled.

They are about the same size. CRWD had revenue of $125 million, and MDB had $109 million.

CRWD had revenue growth of 88%. — MDB had revenue growth of 52%.

CRWD’s revenue rate fell by 6% sequentially. — Mongo’s fell by 22% sequentially (52 is 78% of 67… a fall of 22%).

CRWD had subscription revenue growth of 98%, — Mongo had subscription revenue growth of 56%.

CRWD’s subscription revenue rate was flat sequentially (It stayed at 98%). — Mongo’s fell by 21% sequentially (56 is 79% of 71… a fall of 21%).

CRWD’s Adj operating loss was $16.5 million, improved from $29 million a year ago. — Mongo’s was $14 million, worsening from $8 million a year ago.

Crowd’s Adj net loss was $13 million, less than half its loss from $29 million. — Mongo’s was $15 million, more than double its loss $7 million a year ago.

Crowd’s Operating Cash Flow was positive $39 million, improved from a loss of $3.6 million a year ago. — Mongo’s was a loss of $11.5 million.

Crowd’s Free cash flow was positive $7 million, improved from a loss of $13 million a year ago. — Mongo’s was minus $13 million, worsening from minus $11 million.

And it goes on and on…

So we had one company with huge revenue growth, falling slowly, and another with much slower revenue growth falling rapidly. And the one with rapidly falling growth was increasing operating losses, net losses and cash flow losses, while the rapidly growing one was shrinking all of the losses. That’s an insane comparison… to me anyway.

Guess what? I took advantage of the aftermarket and premarket to sell part of my MDB shares at what seemed to me to be an irrational rise to $139.50, and bought Crowd at about $49.00. We’ll see if I turn out to be wrong. It’s happened before.

Saul

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So we had one company with huge revenue growth, falling slowly, and another with much slower revenue growth falling rapidly. And the one with rapidly falling growth was increasing operating losses, net losses and cash flow losses, while the rapidly growing one was shrinking all of the losses. That’s an insane comparison… to me anyway.

Guess what? I took advantage of the aftermarket and premarket to sell part of my MDB shares at what seemed to me to be an irrational rise to $139.50, and bought Crowd at about $49.00. We’ll see if I turn out to be wrong. It’s happened before.

Saul

Thanks for the interesting comparison, Saul.

I own both. I had owned CRWD earlier in the year and sold at higher prices but bought back in recently after the spectacular earnings.

By the numbers, CRWD seems like the better investment after the drop in price. They are comparable on an EV/S basis (just over 19 times forward revenues for CRWD and just over 18 for MDB). CRWD’s price movement is complicated by the lockup expiration. But I wonder how much of the valuation is based on market position. MDB, from what I understand, has a dominant position in its niche which should last for the foreseeable future. CRWD, on the the other hand, seems to have less certainty in this regard. The market seems to be paying up for MDB’s clearer path to continued growth even if its not as rapid this moment.

Is that possible?

Dave

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Guess what? I took advantage of the aftermarket and premarket to sell part of my MDB shares at what seemed to me to be an irrational rise to $139.50, and bought Crowd at about $49.00. We’ll see if I turn out to be wrong. It’s happened before.

Saul, given the entirety of your post, just wondering why you sold only part of your MDB shares, as opposed to all of your MDB shares. I don’t mean to necessarily buy CRWD; rather, just in terms of the worsening numbers for MDB.

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Saul: Guess what? I took advantage of the aftermarket and premarket to sell part of my MDB shares at what seemed to me to be an irrational rise to $139.50, and bought Crowd at about $49.00. We’ll see if I turn out to be wrong. It’s happened before.

Saul, given the entirety of your post, just wondering why you sold only part of your MDB shares, as opposed to all of your MDB shares. I don’t mean to necessarily buy CRWD; rather, just in terms of the worsening numbers for MDB.

I guess Saul already answered your question: We’ll see if I turn out to be wrong. It’s happened before.

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Kevin, it’s probably best to let Saul answer my question himself, if he is so inclined, especially because what you are guessing Saul already answered is not what I asked. I don’t mean this to be snarky, just seems it is cluttering the board with an unnecessary supposition in response to a question I specifically posed to Saul.

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Well I got it half right… I added to CRWD again today at $48.70, but hadn’t reviewed the MDB earnings enough to think about triggering a sell on some of that during early market hours (but now have an order out). When I glanced at early-hours trading, MDB was +10%, and now at 11:30am ET, it’s barely up 2%, so it seems like the Market agrees with Saul’s take, at least on MongoDB.

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CRWD had subscription revenue growth of 98%, — Mongo had subscription revenue growth of 56%.

CRWD’s subscription revenue rate was flat sequentially (It stayed at 98%). — Mongo’s fell by 21% sequentially (56 is 79% of 71… a fall of 21%).

Hi Saul,

One thing to note about subscription revenue - With Atlas now at 40% of total revenue, subscription revenue will continue to decline as well as deferred revenue since Atlas is billed based on consumption.

CFO commentary:
As a reminder, the continuing growth of Atlas as a percentage of our overall business impacts our reported financial results in several ways. First, Atlas revenue is recorded on a consumption basis, whereas Enterprise Advanced includes a term license component that is recognized upfront. So for a comparable dollar-sized contract, both Enterprise Advanced and Atlas will recognize the same amount over the contract term, but the Atlas contract will generate less initial revenue, and as Atlas grows as a percentage of our revenue over time, this timing impact is greater.

Second, Atlas has a lower overall gross margin than Enterprise Advanced because of its infrastructure component. That said, on an apples-to-apples functionality basis, Atlas is accretive to dollars of gross profit.

Finally, self-service Atlas customers and a growing portion of our direct sales Atlas customers pay us monthly in arrears versus annually upfront for Enterprise Advanced. We would expect the percentage of customers paying monthly in arrears to grow over time as we increase our focus on driving adoption of Atlas. We believe that facilitating the ease of consumption will ultimately maximize long-term revenues and cash flow.

The losses for now dont bother me as much as Mongo is certainly firing in hypergrowth mode, they are not running the business at this time to maximize cash flow and profits. They need to capture as many accounts as possible, as they have stated:

Vinod Srinivasaraghavan

Congrats on the strong quarter. I have a question on Atlas first. You had mentioned that expansion rates were strong with both self-serve and direct customers, but are you seeing new self-serve and direct sales lands come on board who are spending much more now within their first year compared to when you IPO’ed?

Dev Ittycheria

No question. As Atlas becomes more popular, as we add new features and capabilities, as we add more coverage around the world, as customers themselves get more comfortable, the word-of-mouth and virality of the usage, we’re clearly seeing deal sizes go up in Atlas.

Mongo’s market or TAM I believe is much greater than Crowdstrikes’. Don’t get me wrong, I own CRWD and its not an insignificant position at around 8%, to Mongo’s 12%. I’ve also held Mongo almost 2 years now, and have had huge returns over that time. I’m hoping CRWD can deliver as well. With the exception that we’re buying CRWD at a 10-12 billion market cap, versus buying Mongo when it was only a $2-$3 billion market cap company.

Best,
Matt

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Sorry, az5. I don’t mean to offend you. Just thought I spotted the answer and want to share in case Saul doesn’t have the time to answer.

Regarding CRWD and MDB, my opinion is that MDB dominate noSQL market and should have a big CAP and TAM. CRWD will be very successful in the near future. But longer term is more uncertain than MDB. So if you are nimble, CRWD is a better investment now. But if you want to buy and hold for a very long time, MDB should be the choice.

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Other consideration is for database like MDB, customers have hard time switching out… almost forever… whereas security get switched out (for better architecture / approach) frequently (my guess is once every 2 to 3 years)…

Also consider this: CRWD is pulling in cash from future quarters with growing deferred revenue whereas MDB is pushing out cash by upto 4 quarters with Atlas growing on consumption basis… is that good or bad? depends on how you look at it… for now, CRWD looks better… however, if / when a better mousetrap shows up replacing CRWD, disaster would hit before you know it… for MDB, you are almost assured that financials will continue to look better than here…

FWIW: I have a position in both with CRWD at ~6% and MDB ~7.5%…

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Saul, given the entirety of your post, just wondering why you sold only part of your MDB shares, as opposed to all of your MDB shares. I don’t mean to necessarily buy CRWD; rather, just in terms of the worsening numbers for MDB.

Hi Speedy,
I sold all of mine that was in IRA’s (which was the largest part of my position). I also sold the shares in taxable accounts that had just small profits (you only pay taxes on the profit, after all, not on the entire price). That got me down to a 2% position. I felt comfortable holding that for three weeks until 2020, so that I can sell them (if I decide to), and not pay the short term tax for a year and three months (until Apr 2021).
Best,
Saul

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One thing to note about subscription revenue - With Atlas now at 40% of total revenue, subscription revenue will continue to decline… since Atlas is billed based on consumption.

Hi Matt, that’s incorrect.

Subscription revenue is $104 million, which is roughly 95% of total revenue of $109 million.

Atlas makes up 40% of revenue, so they are obviously counting it as subscription revenue.

QED

Saul

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CRWD did have a lockup expiration yesterday.

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Totally accept the comparison, but I think there is an additional difference in the underlying business which matters in the calculation.

Security is always a very rapidly innovating area of tech. New technologies come up all the time, and are adopted very quickly, as this is a priority for business and tech leadership. The bad guys innovate, the good guys innovate, and leading companies are constantly changing.

Databases are a winner takes most game. We are at the start of a movement from Sql to NoSql, that will likely take at least 20 years to play out. MongoDB is currently the winner in NoSql, and that is not likely to change - their constantly increasing revenue gives them the money and prestige to keep up with any innovations in technology.

So Crowd is growing very rapidly now, but looking a little ways out, there is a lot of risk that a new technology will come up and eat into its growth. The huge multiple it’s getting now will contract.

This type of risk is very unlikely for Mongo - most of their risk is from poor strategy or execution, which is management risk we have in every company.

So if we look at risk/reward, or alternatively we relook at our assumptions for how long revenue will accelerate, I think we have a different model for these 2 companies.

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For the longer term, MDB should be better investment comparing with CRWD. But if you are looking for shorter term, yes CRWD should be a better investment.

If you look into lost 5 or 10 years, there are multiple new security software companies that came into this field. But if you look into the database field, there are very few. Example Oracle, I know this database for around 20 years. It should be the same for Mongo DB. After 10 years Mongo DB should be there, but there is no guarantee for Crowd Strike.
Because it’s very difficult to change the database since its so much work, comparatively it’s easy to change security software.

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Subscription revenue is $104 million, which is roughly 95% of total revenue of $109 million.

Atlas makes up 40% of revenue, so they are obviously counting it as subscription revenue.

True Saul,

But I think going forward, as Atlas becomes bigger and bigger, we will see a shift (it has already begun as Atlas keeps growing like mad)

As a reminder, the continuing growth of Atlas as a percentage of our overall business impacts our reported financial results in several ways. First, Atlas revenue is recorded on a consumption basis, whereas Enterprise Advanced includes a term license component that is recognized upfront. So for a comparable dollar-sized contract, both Enterprise Advanced and Atlas will recognize the same amount over the contract term, but the Atlas contract will generate less initial revenue, and as Atlas grows as a percentage of our revenue over time, this timing impact is greater.

Finally, self-service Atlas customers and a growing portion of our direct sales Atlas customers pay us monthly in arrears versus annually upfront for Enterprise Advanced. We would expect the percentage of customers paying monthly in arrears to grow over time as we increase our focus on driving adoption of Atlas. We believe that facilitating the ease of consumption will ultimately maximize long-term revenues and cash flow.

So at the moment, it’s mixed from paying all up front (as a subscription) or being billed monthly in arrears based on consumption. Management is saying that the more self serve customers they acquire and a “growing” portion of direct sales Atlas customers are opting for monthly consumption billing. And they expect this to continue.

In the Q&A, the CFO commented further:

Michael Gordon

And then, Raimo, on your kind of billings-related question, yes, I think from the very beginning and outside of our life as a public company, we’ve highlighted how that’s not a metric that we use internally or one that we focus on. I, obviously, understand that it’s a popular one that investors and other folks look at. We tend to focus on the revenue, specifically, in the business. I think the other piece that’s particularly challenging about billings, which we’ve talked about is, we’re looking at sort of the revenue plus the change in deferred; historically, the change in deferred has really been the place where people have chosen to – or people have a chance to outperform in recurring revenue subscription businesses, and I think Atlas sort of changes that. And so looking at deferreds in isolation, in particular, we’ve heavily discouraged people from billing.

We also are going to be, as I mentioned in the prepared remarks, continuing to focus on driving ease of adoption and ease of use of adopting Atlas, and that will continue to most likely involve a higher percentage of Atlas-related customers paying monthly for invoicing in arrears rather than signing big, large commitments upfront and paying for those, which would generate incremental deferred revenue. So I think while it’s not a metric that we’ve ever focused on, I think you’re correct it’s of decreasing value or insight relative to understanding the business.

Best,
Matt

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Steppenwulf,

I practically salivate at the idea of Mongo becoming the next Oracle. This would be a huge success. But the large operating losses and slowing growth give me pause. Mongo’s rule of forty score looked quite healthy last year when they were growing around 70%. But with the large and growing losses and the slowing growth, the company is starting to look unattractive on a rule of 40 basis.

How can we be confident that Mongo the company will be able to survive and not eventually be consumed by expenses, leaving it vulnerable to takeover?

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So Steppenwulf, if I read you correctly, you agree that Crowdstrike is a much better company to invest in at present, but that you are sticking with Mongo because AT SOME UNKNOWABLE TIME in the next five to ten years Crowdstrike MAY get disrupted (or even IS LIKELY to get disrupted). Did I misunderstand you?
Best,
Saul

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So Steppenwulf, if I read you correctly, you agree that Crowdstrike is a much better company to invest in at present, but that you are sticking with Mongo because AT SOME UNKNOWABLE TIME in the next five to ten years Crowdstrike MAY get disrupted (or even IS LIKELY to get disrupted). Did I misunderstand you?

That is how I read it, Saul. My two cents, being a techie as well as an ex-Oracle employee (though not in software), is that MDB does have a large market that they can grow into. And migrating databases is, well, very difficult. Even inside the SQL world (all SQL implementations also have proprietary features, so migrating from Oracle to IBM is often too much pain to deal with). So once a company gets too invested in MDB they are likely to stay with MDB.

I had bought back into MDB in October, and then sold out yesterday. I’m not willing, in this environment, to wait upon a thesis that might play out that far in the future on a company currently not making a profit. Do they have an actual plan on how to become profitable, or are they just hoping that “growth” will eventually bring the profits in? I don’t have that kind of patience, especially with tech companies.

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I had bought back into MDB in October, and then sold out yesterday. I’m not willing, in this environment, to wait upon a thesis that might play out that far in the future on a company currently not making a profit. Do they have an actual plan on how to become profitable, or are they just hoping that “growth” will eventually bring the profits in? I don’t have that kind of patience, especially with tech companies.

Yes, bjuraz, they, like Elastic, seem to have no interest in moving towards profitability. Or even breakeven.
Saul

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Agree with Sauls take on this.

Mongo has been growing the same dollar amount qoq. In fact, exactly $10M qoq for last 2 quarters. Can’t maintain growth rates with that.

With the stellar results from Zoom and Crowd, combined with a serious compressing of their valuations(I mean Zoom at $110? last quarter).

Crowd had really great results, Saul did a great write up on it. I can only agree with everything he said, not much to add. I’ve been on the fence with Crowd, but with that quarter and now at the right price I’m rebalancing all over the place to buy shares.

Haven’t seen a discussion on Zoom’s quarter, but man they had an equally impressive quarter. Added 7,800 customers!!! Sure some are small but all are paying. Impressed by Zoom Phone right out of the gate. It’s in such high demand from existing customers that they haven’t GA’d it yet. Big wins, big quarter. Long runway. Becoming defacto standard. Is there even a reasonable argument against that at this point?

Analyst asked about timeline for Zoom phone is China and India. What like a couple of years, as is typical?

A: Couple of years. God no! Couple of months!

And I am just smitten with Zooms cash machine just printing money. $55M in Free Cash Flow!! Up 440%!!

Also expanding my Zoom position which was small.

Darth

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