MDB Atlas

[PaulWBryant]

Mongo gives us Atlas revenue as a % of total revenue. For this quarter it was 35%. Multiply that by their $89.4m of revenue and you get Atlas Revenue of:

         Jan    Apr    Jul    Oct
2018    $5.0m   7.0m  10.3m   14.3m
2019    27.4m  31.3m

340% YoY sounds great, but quarter over quarter the story is the opposite. Here are the QoQ growth numbers so you can see how much Altas slowed this quarter:

         Jan    Apr    Jul    Oct
2018            40%    47%    39%
2019     92%    14%

14%??? Yikes! The 92% last Q was of course an outlier, that I think had to do with conversions of mLab customers. And they mentioned mLab revenue will “deteriorate.”

This looks scary to me, as a lot of my MDB thesis was based on Atlas. If it slows to a pedestrian growth rate, even if it’s still great – 70% or something, does the rest of Mongo’s business drag down the overall growth too much? I know Atlas is the only part I was really optimistic could keep growing crazy fast.

Words like deteriorate led me to a very different feeling about Mongo’s results than what Saul expressed. Saul and others, what are you all (and the market) seeing that I’m not?

Bear

[LifeOfDreamer]

Just my opinion: dont overthink Atlas growth rate.

Atlas = cloud.

Most large enterprises have and will continue to have data onprem, both due to security and cost. Cloud does not equal cheaper, except for “cold” storage you dont plan on accessing much.

Massive data anayltics will take place where the data is. So onprem not going anywhere for AYX or MDB or ESTC.

Atlas grows off small base, so numbers are extreme. Startuos and smaller companies will gravitate to Atlas, so Atlas should always grow faster than onprem. Butlarge enterprise use that increases onprem can affect the Atlas % of total revenue.

On phone…not pc…so probably cant elaborate a ton here.

Net is that i would judge MDB by total growth rev rate either way, because Atlas growth rate will naturally slow and then likely stabalize.

Whether they are selling atlas or onprem, growth and wins are all positive on either category.

Dreamer

[12x]

Mlab revenues will deteriorate because they are switching these customers to Atlas. I do not see “deteriorate” in the way they did here as a danger sign. They are shutting down a service.

As of March 2019, they were forecasting mLab to account for $20 million in revenue for FY 2020. They bought mLab for $68 million. So the way I would estimate it is take $5 million out of sakes each quarter. Even atlas specifically if you want. Meaning atlas sales would be up 271% this quarter. Mongo is still growing 33% without atlas altogether (obviously not huge but clear some are opting for atlas instead of self hosted).

[bjurasz]

If we take 92% as an outlier, I believe we find that going from 14.3m to 31.3m in 2 quarters is 29.8% growth QoQ. Even then it does appear growth is slowing on MDB. I’ve been very close to trimming some today. In fact, all month so far I’ve been trimming on my high growth names. I know macro trends are taboo here so I won’t go into my reasoning. But, in MDB’s case in particular, I do think growth is starting to slow down.

[12x]

Here’s another way to put it.

Even if we take $10 million out of this quarter for mLab, which would be a very, very conservative number, given they were calling for $20 million for the full year, MDB would have grown 55%.

Granted, one would have to consider Atlas has lower margins and Atlas is their best effort insofar to monetize the database, but still, at this point I would consider mLab revenues to be a nonissue. More of a rounding error as each quarter goes on. Unless mLab itself is growing dramatically,at which point it was a good acquisition.

[thejusticier]

There have been many discussions about on-prem vs cloud subscriptions, and the mix for many businesses. It almost sounds like a generic theme in this sector but some stocks are just performing better than others when their business is undergoing the shift more towards the cloud. There is no explanation why the market would value the same sort of things differently. There is no explanation. It just does. What do some see and you don’t (to Paul)? Nothing really. It’s just what you want to see and when that is confirmed you buy more and so the followers and that lead to stock rise in the short term.

What does shifting your focus from y-o-y quarterly growth to looking at quarter-to-quarter growth change? You see some smaller numbers and trying to make sense where there is none when trying to explain the short term move of a stock. Yes it did move up tremendously today. Not unhappy about that but I just wish it will stick and move higher in the years to come- fingers crossed. I am less stressed about the volatility since I don’t have 15% or 20% or more of my moneys in Mongo. I am glad to hold MDB today and will be glad when MDB drops tremendously as it will inevitably. Maybe it will be right to buy more then, or maybe not.

tj

[Darthtaco]

Hey Bear,

The first 4 quarterly $ numbers represent 605 and the later two represent 606.

But really the only two numbers we might be able to correct is first JAN and OCT. In Jan call management said in its 606 remarks “Atlas represented 32% of revenue during the quarter, up from 10% in the fourth quarter last year and up from 21% last quarter.”

606 for Jan doesn’t make an adjustment worth mentioning.
Oct Revenue adjusted for 606 was $71.782M. 21% of that is $15.1M

So if we look at the Atlas qoq dollar additions for the 606 quarters and take out $5M in Jan & Apr for mLabs we get

Oct $15.1M

Jan +$7.3M
Apr +$3.9M

The +4M addition for the most recent quarter is actually fairly strong in regards to previous quarterly performances. It would be twice the comparable quarter 605 qoq growth for example. So the question is why was Q4 stronger and can that be expected to be a stronger than normal quarter in the future (seasonality).

Management comments from Q4

“Our revenue performance was strong across the board and also benefits from stronger than expected Atlas consumption including a number of customers who consumed well in excess of their contractual run rates.”

Atlas customers enter into contractual run rates that mean they contract to spend a minimum amount over the contract period to host applications on the service. Atlas is priced on consumption. From 10-Q.

“We derive our revenue from two sources: (1) sales of subscriptions, including term license and post-contract customer support (“PCS”), and consumption-based database-as-a-service offerings”. The latter being Atlas.

“MongoDB Atlas, our hosted DBaaS offering which we run and manage in the public cloud. MongoDB Atlas provides customers with an elastic, managed offering that includes automated provisioning”

Atlas is consumption based and is (lower case e) elastic with automated provisioning. So the customers are contracted to spend(consume) a minimum amount and as needed the service expands elastically to provision (consume) more.

So what made Mongo’s Atlas customers automatically expand the consumption of Atlas provisions (more nodes and compute power and data)?

I have a hypothesis. This particular quarter encompassed November 1 to January 31. How many commerce related applications are running on Atlas? We’re not just talking e-commerce but all logistics related to a busy holiday quarter. Shipping, financial services, inventory, payroll, customer service, etc. Probably a long list of business applications I imagine.

So yes seasonality seems to be a player. Management said as much and because Atlas was only at $5M/quarter rate a year ago and was $27M/quarter a year later they don’t have a good grasp on exactly how much to expect and are probably therefore not using it to formulate formal guidance yet.

From that Q4 call.

“Clearly, there’s a little bit of seasonality in our business, and so the fourth quarter tends to be a big quarter in general…

So Atlas benefited from a number of dynamics, and we’re very, very pleased with the quarter. Obviously we have the addition of mLab for the first time in the quarter. But even if you strip that out, it was a very strong and accelerating quarter from an overall Atlas performance.
It’s strong edition of new customers. It’s consumption with existing customers. The other thing that we did try and call out in the prepared remarks though was that we did benefit from a number of customers in Q4 who were consuming Atlas at rates in excess of their contracted amounts. And so we always keep an eye to that in terms of like what is the relative run rate and how does that compare relative to the contracted rate.
And so we don’t have enough history with Atlas yet to know as to how much of that is sort of pulling forward or actually establishing a new run rate level. And so we want to keep an eye on that and want to make sure that sort of expectations don’t go out of control as you all extrapolate things, because I do think that that’s a dynamic that’s at play. But it was really very, very strong across the board.”

Clearly there was seasonality in Q4. Adjust for that and I bet Atlas is crushing it. Because if Some customers temporarily increased spend for Q4, Atlas still achieved all that seasonality increase plus another +$4M in this most recent quarter. If my theory is correct then this coming year will see a similr Atlas seasonal expansion due to busy holiday compute requirements and it would be larger than last year due to Atlas being larger.

Unless someone has a better theory.

Just my thoughts.

Darth

[foodles]

TJ,

I am glad to hold MDB today and will be glad when MDB drops tremendously as it will inevitably.

I wouldn’t be so confident of that, it could easily slow it’s growth for awhile or just move sideways for a time before heading up again. No guarantee it will inevitability drop tremendously! A lot of stocks never really take a breather. I’m not saying that’s what will happen, it could drop next week…or not…and if there is a large general market selloff, of course it will drop along with all stocks. But if you’re waiting for that tremendous, inevitable drop to add to your position, you may find you’ve missed out.

It’s been that way with a lot of these stocks for a couple of years now.

[XMFBreakerTinker]

You know, Mongo has been a very volatile stock. It has a wide trading range. The funny thing about Mongo however, and it shares this characteristic with Shopify, is that every time you wait for next “buying opportunity” it is 30% higher than the high was the last time you said it was too expensive and would inevitably crash from there anyways.

This said, there are two analysts out there with price targets on Mongo in the $70s and $80s.

One analyst on Nvidia had a price target of $30 then raised it to $50. No, Nvidia never fell nearly that far, but he was proven right in his more bearish attitude. However he was only proven right after the fundamentals of Nvidia demonstrably changed.

So, in the end, no, he was not correct. He missed out on shares rising from $15 billion market to its peak, and even now a 6x -7x bagger.

On that old board, NPI, I made a poster that I called the most profound SA article ever:

https://discussion.fool.com/most-profound-sa-article-ever-341484…

Shopify was up 500% and the author had still not found an opening to buy into the shares as valuation continued to be stretched…

The inevitable crash…

Yes, a volatile trading range, and yet during none of it, through crashes and peaks and valleys for some reason or no reason, not one time was there a valid entry point for this author on SA.

Tinker

[FourthStooge]

Clearly there was seasonality in Q4. Adjust for that and I bet Atlas is crushing it. Because if Some customers temporarily increased spend for Q4, Atlas still achieved all that seasonality increase plus another +$4M in this most recent quarter. If my theory is correct then this coming year will see a similr Atlas seasonal expansion due to busy holiday compute requirements and it would be larger than last year due to Atlas being larger.

Unless someone has a better theory.

It looks like you described what’s going on really well. In the past, prior to the subscription licensing model, we had to be a lot more careful analyzing growth. Companies using a perpetual, pay in advance licensing model would be able to oversell capacity in any given quarter to make (or exceed) the numbers. But the commercial conditions attached to those transactions stay with the customer forever. This works for a while as long as the product is in need. But eventually, there is not enough growth to compensate for the oversold forward capacity and more generous terms and conditions already sold (think Y2K). For every great existing customer you oversell, you need to go out and find a lot more customers to attempt to replace the loss in revenues. This is a lot harder in the long run, because it’s time consuming and expensive.

So if management is aware of this, they could ensure they establish compensation plans that do not promote such sales behavior. The subscription model makes this work a lot easier, because it eliminates most of the incentives that lead to bad terms and condition, which live on forever, being written into contracts.

If we start seeing a lot of longer term prepaid Atlas contracts, we can pretty much assume that they’re being done with worse conditions than the monthly, pay in arrears or annual pay up front contracts.

As there are different teams with different compensation plans selling to the Enterprise than selling Atlas, it appears as if management is doing the right things. We’ll be able to follow this on the earnings calls.

DJ

[SaulR80683]

Hi Bear,
I think you are over thinking about this. Taking your figures:

 **Jan    Apr    Jul    Oct**
**2018    $5.0m   7.0m  10.3m   14.3m**
**2019    27.4m  31.3m** 

And then look at six month growth and eliminating the outlier Jan 2019 you have:

**Jan 2018 to Jul 2018 - from 5.0 to 10.3 = 106% growth 6-month sequentially**
**Apr 2018 to Oct 2018 - from 7.0 to 14.3 = 104% growth 6-month sequentially**
**Jul 2018 to Jan 2019 - Jan 2019 is an outlier (It's too large. Six month growth would be 166%. Makes no sense.)**
**Oct 2018 to Apr 2019 - from 14.3 to 31.3 = 119% growth 6-month sequentially (Back to normal)**

Best,

Saul

[PaulWBryant]

Management comments from Q4

“Our revenue performance was strong across the board and also benefits from stronger than expected Atlas consumption including a number of customers who consumed well in excess of their contractual run rates.”

Darth: Because if Some customers temporarily increased spend for Q4, Atlas still achieved all that seasonality increase plus another +$4M in this most recent quarter. If my theory is correct then this coming year will see a similr Atlas seasonal expansion due to busy holiday compute requirements and it would be larger than last year due to Atlas being larger.

Sounds like you’re probably right, Darth. Great find. I agree – doesn’t look like Atlas is a problem. The overall growth looks like it might slow, though. Forget the meaningless 92m guidance. Let’s say they hit 100m. Last year July Q revenue was 57.5m. Let’s say ~60m under 606. That would be 67% growth, way down from the last couple quarters, even with the acquisition contributing a little. I guess I feel like growth dropping that much would be a bit of a let down. Do others feel differently?

Bear

[nilvest]

I agree with Darth theory…

Also, if I remember right, MDB reduced Atlas pricing recently not sure if it was this quarter or mid of previous one but for sure that would be reflected fully in this quarter.

So, not only they overcome the Q4 seasonal bump, they also overcome ASP reduction (on a per unit basis… I am not sure what the unit is) and still posted +$3.9M q/q on Atlas.

Ofcourse some people were concerned on price reduction but I thought that was necessary for consumption based model… ala AWS… and it bodes well for long term…

[brittlerock]

Saul and others, what are you all (and the market) seeing that I’m not?

Not speaking for Saul (I see he chimed in) but I think the answer is along the lines of you only see what you choose to look at. Numbers are informative, but they can also be deceptive. I think you’ll need a few more quarters in order to establish a trend.

But aside from the numbers, consider the company and the products. Mongo has already captured mind share. They will have to screw up big time to lose the leadership position they have already established. The management of the company appears to be on point. I don’t perceive any indication of pending screw ups.

They will not displace relational technology. There are too many use cases ideally suited to the RDBMS paradigm. But they hold undisputed leadership in the No-SQL document DBMS market. The data volumes are expanding at a rapid pace. The use case are expanding. The recognition of the requirement for managing “document” data types is expanding.

Sell if you think that’s the appropriate thing to do. Sell if you are uncomfortable with the investment. But, for what its worth, I don’t share your concerns. MDB is my largest position.