MDB - Random thoughts

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While waiting for next week’s HYPERSCALERS to report, followed by some of our stocks the week after, I’ve been thinking more about my positions. One that I think is under-appreciated, but is quickly growing appreciation, is MongoDB (MDB).

Why?
Well, first off, the numbers look FANTASTIC. Accelerating growth at a VERY stead pace.

YoY growing from 38% to 56% in 4 quarters. QoQ clocking 14.2 & 17.4% the past two quarters. Oh, those are annualized rates of 70 & 90%!! The guide they gave indicates this quarter will be another acceleration YoY but the QoQ will be weaker (seasonality). The year ago’s comp was 6.2 QoQ.

Second, MDB is the ideal database solution for distributed workloads. Think about this as a “closer to the edge” database. Its not quite on the edge but can be distributed across geographic locations. Mobile apps (even video games). We live in an increasingly more and more mobile world. I think this segment of the database market will grow much faster than the traditional operational databases (OLTP as opposed to analytical databases, referred to as OLAP).
Another situation that MDB excels in is a database where there are a TON of writes. It is much faster to write to MDB than a traditional SQL based database. Again, this is ideal for mobile workloads, video games, IoT (monitoring the health of devices around the world).
Not to be forgotten, there is a very large subset of databases, more like a majority of databases, where the workloads are light enough that even a sub-optimally selected database platform will work fine. For these, developer preference will often win out.
When Mongo pivoted away from the pure open source into the Atlas world, everything changed and we knew it. ATLAS now makes up 58% of total revenue AND is growing MUCH faster. So it will continue to make up more and more overall revenue. This means ALL the metrics will continue to get better (revenue, GM, DBNRR).
Another thing to throw into this is something that ExponentialDave brought up in his video discussion of MDB. The DBNRR they report is for the company as a whole. The ATLAS DBNRR is likely much closer to 150! It is likely second ONLY TO SNOWFLAKE among our companies!!
Now, throw in there the fact that MDB basically has no competitors. They have won this market segment. The article Saul referenced that Peter wrote is a prime example. The Hyperscalers have anointed MDB as the preferred offering! ON TOP OF THIS, the part Peter points out where the MDB acceleration coincides with when the Hyperscalers started HELPING to sell Mongo instead of focusing on competing! The capitulation of the Hyperscalers to MDB being the de-facto offering.

I re-iniated my MDB position a couple months or so ago after having it at the top of my watch list for several months. My conviction in it is very high. It is currently my 4th biggest position at around 12.5%. I’d like to up it but… well, I’d have to sell something else. Haha.

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2

While waiting for next week’s HYPERSCALERS to report, followed by some of our stocks the week after, I’ve been thinking more about my positions. One that I think is under-appreciated, but is quickly growing appreciation, is MongoDB (MDB). – FinallyFoolin

I think the primary “unappreciated” aspect of MDB is this:

The best part of the company is a product called Atlas. It started out small, but due to it’s ongoing 80% revenue growth rate, it has become the “tail that wags the dog”… meaning that it is the driver of that accelerating company growth.

Too lazy to pick through the data, but it appears that we should see Mongo’s growth rate continue to surge toward 70%+ as Atlas basically BECOMES the company.

And that, my friends, is why I bought it earlier this year. I think Atlas performance is finally going to be strongly pushing company performance… resulting in some positives for that pesky stock price.

Rob
Rule Breaker Home Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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3

The conversion from on-prem to cloud solutions (i.e. Atlas) has a way of taking away from top-line revenue for a period of time. Companies undergoing this transition such as MDB will appear to be growing slower, as customers who transition typically are incentivized to make that transition, but also affects how companies can recognize revenue over the duration of a contract. But once they transition, the subscription (as we all know) has a way of growing (ARR), unabated.

MDB was out of favor for awhile as this was happening, but investors have started to see the acceleration now that Atlas is the majority of revenues, it’s ARR growth outweighs the on-prem revenue that is being cannibalized.

Bert covers a few companies whose ARR’s are growing much faster than their overall revenue and while their overall growth rates may not yet meet the high-bar of this board, I believe there is hidden value in some of those picks as the market in general doesn’t account for this anomaly.

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4

Here are some interesting data on the historical and next years projected Market Cap to TTM Sales numbers:


Quarter	Hi	Low	Close	WAS	MCAP?	MCAP?	MCAP?	STTM	Hi	LOW	EOP

Oct-17	34.00	29.10	30.48	17.4	 592 	 507 	 531 	 - 	 - 	 - 	 - 
Jan-18	31.11	24.62	27.11	50.3	 1,564 	 1,238 	 1,363 	 166 	 9.4 	 7.5 	 8.2 
Apr-18	46.26	25.16	35.99	50.4	 2,329 	 1,267 	 1,812 	 181 	 12.8 	 7.0 	 10.0 
Jul-18	62.01	35.23	54.11	51.2	 3,174 	 1,803 	 2,770 	 203 	 15.7 	 8.9 	 13.7 
Oct-18	85.25	53.32	81.50	52.7	 4,493 	 2,810 	 4,295 	 230 	 19.5 	 12.2 	 18.7 
Jan-19	93.23	65.62	92.36	53.8	 5,018 	 3,532 	 4,971 	 265 	 18.9 	 13.3 	 18.7 
Apr-19	154.80	88.35	140.92	54.7	 8,469 	 4,834 	 7,710 	 305 	 27.8 	 15.9 	 25.3 
Jul-19	184.78	127.14	143.22	55.6	 10,283  7,075 	 7,970 	 344 	 29.9 	 20.5 	 23.1 
Oct-19	160.41	110.61	127.77	56.4	 9,049 	 6,240 	 7,208 	 384 	 23.6 	 16.3 	 18.8 
Jan-20	169.00	121.59	163.91	56.9	 9,623 	 6,923 	 9,334 	 422 	 22.8 	 16.4 	 22.1 
Apr-20	182.57	93.81	162.13	57.6	 10,525  5,408 	 9,347 	 463 	 22.7 	 11.7 	 20.2 
Jul-20	243.92	153.61	229.08	58.4	 14,243  8,970 	 13,377  502 	 28.4 	 17.9 	 26.7 
Oct-20	273.01	186.27	228.47	59.4	 16,208  11,059  13,564  543 	 29.9 	 20.4 	 25.0 
Jan-21	399.00	219.51	369.61	60.5	 24,139  13,280  22,361  590 	 40.9 	 22.5 	 37.9 
Apr-21	428.97	250.80	297.46	61.4	 26,322  15,389  18,253  642 	 41.0 	 24.0 	 28.4 
Jul-21	393.63	238.01	358.92	63.4	 24,967  15,096  22,765  702 	 35.6 	 21.5 	 32.4 
Oct-21	525.00	347.34	521.29	66.4	 34,853  23,059  34,607  778 	 44.8 	 29.6 	 44.5 
Jan-22	590.00	340.25	405.11	67.0	 39,514  22,788  27,131  874 	 45.2 	 26.1 	 31.1 
-----------------------------------------------------------------------------------------------
Apr-22			371.00	68.4	 25,366  976 	                                 26.0 
Jul-22			371.00	69.8	 25,886  1,078 	                                 24.0 
Oct-22			371.00	71.2	 26,405  1,180 	                                 22.4 
Jan-22			371.00	72.6	 26,925  1,283 	                                 21.0 
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		Dilution:	8.4%	Beat:	10%			  Multiple @ $371/share

At today’s price, the multiple goes down to 21 (assuming a 10% beat on guidance and a bit over 8% dilution - both historically a little conservative).

The more interesting takeaway from this is how 21 compares to the historical valuation range. Since April 2019 quarter, MDB hit a high multiple of over 27 in each quarter and has been in the forties. Further, revenues are accelerating nicely with the larger proportion of Atlas revenues growing at significantly higher rates than Enterprise revenues. Once greed kicks back in, we should see some serious appreciation.

DJ

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