A new position for me.

[SaulR80683]

Mongodb seems to have finally broken through. Its SaaS component is now 58% of revenue, and is growing much faster than its older hybrid version. For a long time I avoided buying any “open source software” company for two reasons.

First, because anyone could (and did) copy what you had done and release their own identical, or near identical, version (ie Amazon released its own version of Mongo’s software solution, and copied every improvement).

Secondly, because the managements of “open source” companies seemed like part of a idealistic cult, out to do good for the internet, and were much more interested in keeping on good terms with other open source developers than making money for stockholders, who came in last in their list of priorities. (Please take into account that this is just my biased opinion, and don’t bother sending me outraged emails telling me how wonderful open source is for the world).

Well Mongo broke out of this two or three years ago when they realized that Amazon would just keep copying every advance they made, and decided to copyright/patent their new advances from then on, to some outrage from the open source community. Well Amazon had to stop copying them and Amazon’s copied software product is now still okay, but way outdated compared to Mongo’s latest.

And secondly, Mongo advanced beyond on premise software, and released its SaaS version for the Cloud, which has been growing by leaps and bounds and is now, as I mentioned above, well more than half of revenue and growing much faster than the company as a whole.

And finally, as Peter Offringa pointed out, the hyperscalers like AWS, azure, and Google, have decided within the last year to quit fighting the software companies like Mongo, and partner with them instead.

Mongo’s revenue growth has thus really accelerated in the past year and should continue to do so for the immediate future at least. Here is a summary from Mekong’s post with some commentary from me:

Year over year growth

Q3 21 +38%
Q4 21 +38%
Q1 22 +39% (Stable yoy, though sequentially it was up only 6%, so Q1 the year before must have been low sequentially too)
Q2 22 +44%
Q3 22 +50%
Q4 22 +56% (Q and fiscal year 2022 ended Jan 31, 2022).

You can see that the growth rate, after being stable at 38% or 39% for several quarters, went to 56% in three quarters.

Sequential growth

Q3 21 +9%
Q4 21 +13%
Q1 22 +6% (April Q is seasonally light)
Q2 22 +9%
Q3 22 +14%
Q4 22 +17%

Sequential dollars increases:

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

This tells us clearly that we should expect Q1 23 to be lower sequentially too, and if it sells off on that it will be a buying opportunity (but they won’t be announcing it probably until early June (it’s the April quarter).

At any rate, I have taken a 5.5% position, limited by not having more cash and by not having anything I want to sell to buy it.

Best,

Saul

[LifeOfDreamer]

At any rate, I have taken a 5.5% position, limited by not having more cash and by not having anything I want to sell to buy it.

Best,

Saul

---

Hey Saul,
Just curious - didn’t you have to sell something to clear up some cash? If so, are you open to sharing what you pared down in order to add MDB?

thanks,
Dreamer

[SaulR80683]

I received this email from a fellow investor and board member:

Hi Saul, I saw your post on the board about taking a position in MDB. Glad to see you join up! I bought in couple months back but I am wondering if you are seeing the same concerns as I am for the rest of their fiscal year.

MDB is no Datadog, with their customer count >100K growing at a slower pace of 30% ish YoY for many past quarters. I’ve estimated in the most rosiest scenario that their YoY topline growth will begin to slow down starting in Q2 or Q3 of their current fiscal year. Now, I do not mind holding MDB if they can keep up the narrative of a very durable runaway of fast growth along with improving operational leverage, but I remain wary of this deceleration trend coming up, so I have kept my allocation below 6% and trimmed some over the last few weeks. Would love to hear your thoughts. Best,
XYZ

Here is how I answered:

"Hi XYZ, I don’t see why you expect they will slow down like that. Atlas is growing at 86% and has grown to 58% or so of their total revenue. Each quarter it will become a larger and larger part of their business as it grows much faster than the remaining 42% of the company, which is mainly legacy on-premise.

In addition, each of the hyperscalers has now started partnering with Mongo, seeing that they bring in additional revenue, instead of competing against Mongo, as they were a year ago when growth was 38% or so.

It looks to me as if the growth rate will gradually continue to rise perhaps to the high 60’s/low 70’s. And Atlas’ NRR seems to be very elevated, almost like Snow’s, which puts a different light on their percent growth of number of large customers. I see them as a very different company from the one they were a couple of years ago when they were mainly an on-premise company, growing in the 30’s."

Saul

To me it seems as if XYZ was missing the big picture because of focussing on one little detail that he was unhappy with, not seeing the forest for the trees, rather because of one tree that wasn’t growing up to his expectations. Focussing on and fussing over little details is a trend that I try to steer away from. I try to look at the whole picture.

Mongo has made a real transformation in the last year. It has become a whole different story, and a different company, because of two things: first, the hyperscalers partnering with them instead of competing with them, which change occurred during the past year, and second, Atlas, their SaaS cloud-based platform finally becoming the tail that is wagging the dog, becoming more than half the business, and with its growth even accelerating this past year, instead of decelerating as it has grown larger.

Why is Atlas’ growth accelerating now even though it is larger? Good question. I see two reasons. First because of the hyperscalers helping it to grow, but even more because of the accelerating move to the cloud by all the traditional companies out there, who are its customers and its potential customers. Put this along with its status as “having won the war” and become the unquestioned dominant NoSQL company out there, it becomes a huge tailwind for Mongo.

Look at it this way. Last quarter, the legacy business revenue, representing now just 42% of the business, grew at 26% yoy.

While Atlas revenue, now 58% of the business, grew at 86% yoy.

Revenue as a whole grew at 56%, up from 38% a year ago, when Atlas was only 49% of revenue, and was only growing at 65% yoy.

You can see where this is going. Atlas is becoming a larger and larger part of revenue, and growing much faster than it had been growing as well. Total revenue growth rate almost has to rise.

Here are some numbers to help you out:

Atlas’ rate of yoy growth for the last 10 quarters (rounded). You can see how the growth rate had progressively fallen from 187% to 61% by the law of big numbers, until something happened five quarters ago, and the rate of growth accelerated from 61% to the present 86% in five quarters (for the two reasons I cited above).

187
80
76
66
61
65
73
83
84
86

And here are Atlas’ QoQ (sequential) growth rates. You can see the slowdown in each 1st Q (Apr), so remember not to be surprised when next quarter’s sequential growth looks down.

9.7%
19.2%
20.0%
14.8%
7.0%
12.7%
16.4%
17.8%
11.6%
19.5%
17.3%
18.9%

I hope that this has been useful, but also remember that I could be wrong about all of this. No guarantees. I do make mistakes.

Saul

[rodatl]

Saul, I’ve been inclined to invest on MDB as well because of everything you mentioned and because they are hiring like crazy. Not only backfills (all tech world is upside down due to the great resignation), but net new positions. The issue I see is their high stock compensation levels. Like a lot of it. Since they are not buying back (that I know of), the dilution worries me. Am I over thinking and they are on par with their peers?

Cheers,
Rod

[SaulR80683]

Saul, I’ve been inclined to invest in MDB as well because of everything you mentioned and because they are hiring like crazy. Not only backfills (all tech world is upside down due to the great resignation), but net new positions.

The [negative] issue I see is their high stock compensation levels. Like a lot of it… [and] the dilution worries me.

Hi rodatl,

First of all, I have no plans to make Mongo a top position, but as for the issue you raised, I think you have already answered it yourself but didn’t realize it. You wrote “because they are hiring like crazy” (and also mentioned that the whole tech world is trying to fill positions). Now when there aren’t enough tech guys to go around, and you are trying to hire “like crazy,” obviously you have to offer stock options to get them to sign up. That’s just the way life is.

Best,

Saul