MongoDB Q2 Deep Dive

I finally had a chance to listen to the earnings call and go through the new 10-Q filing for MongoDB. After seeing the market reaction and various posts, I was expecting doom and gloom and a pessimistic outlook. I was already starting to think about how I might reallocate a portion of my MDB holdings.

But that’s not what I’ve come away with. To the contrary, I feel that the tone on the call was really positive and optimistic. The quarter itself was very good, particularly on the top line. the costs weren’t entirely unexpected. The new revenue guidance is soft for sure, but I think it might prove to be conservative and the long term story remains intact.

For what it’s worth, MDB is one of my biggest positions, at more than thirty percent of my portfolio, which has been a core holding for 3+ years, much of which has a cost bases in the $50-$80’s per share.

Some of the quotes from the earnings call, I quoted from the TMF transcript here:

https://www.fool.com/earnings/call-transcripts/2022/08/31/mo…

What are they saying?

I really struggled to find much that resembled pessimism or anything from management on the earnings call warning investors that things are not going to plan. Perhaps my glasses are more rose-colored than others, but here are several quotes from the CEO and CFO/COO that I noted that stood out to me:

“we remain incredibly optimistic about the opportunities in front of us”

“The new business environment continues to be robust.”

“We have seen no change in deal activity in sales cycles. We believe our strong new sales performance is a demonstration of the critical business value our developer data platform delivers and our superior go-to-market execution.”

“We have very fractional penetration and continue to see robust new business.”

“almost every bank on Wall Street is using us for some important use case. We have large Fortune 500 companies in industries like telecom, media, tech, healthcare, etc., who are using us for very mission-critical use cases.”

“I would say that we’re still early in the journey in terms of having greater share in those large accounts. “

“And when we’ve sort of crossed 1% market share and are closing in 2% market share, and our biggest challenge is we’ve talked about sort of each call probably, is that our footprint coverage is very thin.
When we are in conversations and in dialogues. Our win rates are exceptionally high.”

“ I would say the tone is very positive, and we feel really, really good about winning new workloads. The morale of our sales force is very high. They’re very excited about the opportunity in front of them. And so we feel really, really good about the opportunity to add both new customers as well as new workloads onto our platform, and that’s a huge priority for us in the back half of the year as well.”

One item that I noted is, in response to a question from an analyst about Snowflake having a similar vision that MDB management has laid out, that they specified that they are not seeing Snowflake as a competitor in the opportunities that they bid on. CEO Dev Ittycheria said “I want to make it clear to everyone that we don’t see Snowflake in any deals”. Maybe that changes in the future as their products continue to evolve and diversify, but at least for now, it appears that they aren’t going up head to head.

Revenue

When they reported Q1 results three months ago, the top end of their revenue guidance was $282 million for Q2, which would have been +42% YOY growth. They came in about 7.5% percent better at just over $303 million, which was a +53% YOY. I wasn’t optimistic that they would break 50% growth this quarter, so that was a nice surprise.

This was despite the European slowdown being “more significant” in Q2 than the company had expected when providing the guidance. This was more than offset by consumption growth in North America being above expectations. While being above expectations, they still called out that the slower than historical Atlas consumption growth is being impacted by the macro economic environment.

Revenue Guidance

So yes, the new revenue guidance provided is only for +34% YOY in Q3 and then implies a paltry +18% in Q4. Others have pointed out that this would be essentially no sequential growth in either of the next two quarters.

The second half of fiscal 2022 (last year) was driven by “very strong” Enterprise Advance (EA) performance (which includes a larger portion of revenue recognized upfront due to the accounting rules of ASC 606), as well as what they describe as “exceptionally strong” Atlas growth in the second half of last year.

So they’ll be up against tougher comps over the next couple of quarters than they have had in recent periods.

But they also specifically said they are expecting a sequential decline in EA as the renewal base is sequentially lower. Given that most MDB investors are in the stock for Atlas, that’s not such a bad thing. That means that, even without any beat on the current guidance, there is a sequential gain in Atlas implied (net of the sequential decline in EA). However, exactly how much that will be, I have no idea how to estimate.

Cost Savings benefits for MDB customers

They called out a few examples of customers realizing what sound like pretty significant cost savings when moving to MongoDB. As much as MDB generally sees headwinds (not tailwinds) when the economy gets weak, it also presents an opportunity to emphasize to customers and potential customers that moving to MDB can save them money and won’t be an incremental increase in expenses in many situations. A couple quotes from the call:

“A multinational trillion-dollar financial services company chose MongoDB to power the next-generation trading platform to cover all of their various trading businesses with one solution.
Since launching the new service, the customer has been able to decommission eight legacy trading systems and realized cost savings of almost $50 million in annualized expenses.”

“A leading Canadian security provider migrated its IoT and AI security platform away from an open-source relational database to Atlas. With the ability to use MongoDB’s native charting to distribute their database over lower cost instances, the company has been able to significantly reduce their database spend by 60%, which is particularly compelling given the open-source nature of their prior solutions.”

Economic Recovery Timing

The very last question of the Q&A during last week’s earnings call from the Macquarie analyst, I thought was an interesting one. Because Atlas revenue is driven by consumption/usage of their customers’ underlying applications, they may have seen a negative impact faster than other companies did/will, but it also suggests that, when the macro economic conditions improve, MDB should see a boost to growth very quickly as well:

Fred Havemeyer – Macquarie Research – Analyst

Hey. Thank you. When you look at your Atlas consumption model, do you think that Atlas’ alignment with your end customers’ demand trend means that you’re more or less seeing the macro downturn in essentially real time, something that maybe is a little more unique here versus other software vendors? Do you think that this alignment also means that you can see the benefits of economic recovery sooner than other annual subscription software models?

Michael Gordon – Chief Operating Officer and Chief Financial Officer

So I think the run on to Fred is yes. We do think it’s a more real-time reflection given that we’re really sort of a second order effect of the underlying activity in their applications. And obviously, we’re not macroeconomists, and so I’m not forecasting recovery, we guess theoretically that if there were increases in activity and increases in underlying usage, that would drive incremental consumption of our platform.

Costs and Expenses

I’ve seen plenty of comments about concerns that MDB is not moving toward profitability, or taking a “step back” with their latest results. I get that companies are no longer being rewarded for revenue growth at all costs and the ability to show income, or a path to profitability is being weighted much more heavily by investors and the stock market lately than in the recent past. Fair enough. At the same time, I don’t think we’re seeing anything in MDB’s costs that is surprising based on what they’ve told us to expect, and in building the business for the long term, they have a strong balance sheet, aren’t burning a significant amount of cash, I can’t see anything to surprising or disappointing here.

Well there is a lot to unpack, so let me touch on some of what I think are key in understanding their spend and how it fits with their profitability trends.

FY’23 Guidance and Expectations

When the year started, MDB gave full year guidance showing, at the low end, non gaap loss of operations of -$22 million. Even despite some of the macro challenges so far this year, they’re likely to do better than that, as the latest range guides for -$8 to -$13 million and I won’t be surprised if they come in even better than that, close to break even.

During the year end earnings call in March, management seemed to caution analysts not to expect FY 2023 (the current year that is now half over) to be a profitable or cash flow positive. One of the analysts had questioned, at the time, if we should expect ’23 to be cash flow positive, to which management replied “it’s not a specific milestone that we’ve focused on” for this year.

You ask “why would that be?” If revenue grows much this year, shouldn’t we see at least some of that fall to the bottom line and demonstrate a trend toward profitability? To better understand this, we have to consider MongoDB’s historical spend and how it has been impacted during the past couple of COVID years.

Travel, events and office expenses, have been unusually, temporarily, reduced the past couple of years given the pandemic environment. In Q2’23, MDB hosted their big MongoDB World event for the first time since before COVID. So a significant chunk of this year’s budget is not so much incremental spending, but more normalized spending after a couple years of abnormally reduced expenses in certain areas. It’s a bump in cost growth just this one year to get things back to where the company believes they should be to best run their business over the long term.

Just three months ago, during the last earnings call, management specified

“As a reminder, our fiscal '23 guidance assumes a post-COVID normalization of travel, events, and office expenses starting in Q2, resulting in an incremental $45 million to $55 million in those expenses in fiscal '23.”

So over these nine months (Q2-Q4 2023) we are going to see an incremental $50 million of expense. That is significant for a company that only had $215 million of gross margin this past quarter. If the latest guide (which I think will prove to be conservative) of very little sequential growth over the rest of this year holds, that would mean about $645 million of margin over those nine months, so these additional costs will be somewhere between 7.0% and 8.5%. And I would bet that the largest portion of that incremental spend probably took place already in Q2, given that the MongoDB World event was probably very expensive to put on, and we may see a lesser impact in Q3 and Q4.

Stock Based Compensation

I’ve seen plenty of comments about Stock based compensation being high, and it is certainly a large item that we need to pay attention to. Through the first half of fiscal 2023, SBC was $180 million, and the company’s net loss was $196 million, so one could argue that SBC accounts for most all of MDB’s losses. On the bright side that confirms that, net of the stock based comp, they are essentially breakeven already. Of course the flip side to that is that there is a real cost to investors when it comes to dilution.

I spent quite a bit of time today poring over MDB filings trying to better understand their SBC and to be completely honest, I came away still without a strong grasp of the components. This was 180 degrees different compared to when I looked into TTD’s SBC not long ago and posted a long analysis on the premium boards that detail why I felt they were structured in such an stockholder friendly way and shouldn’t be very concerning to investors. Frankly, if someone like myself that understands SBC, and how awards get valued and expensed has a hard time getting to the bottom of how MDB’s SBC works, it would make it extremely difficult for an investor without an accounting background to understand what’s going on.

That being said, the majority of the SBC expense, we can see relates to restricted stock unit (RSU) grants from past years, and not new grants during this year. Looking back at MDB’s latest form 10-K, they specify that:

As of January 31, 2022, there was $768.0 million of unrecognized stock-based compensation expense related to outstanding RSUs that is expected to be recognized over a weighted-average period of 2.55 years.

So even before this fiscal year started, we knew that there would $768 million of SBC expense over the next two and a half years (again just relating to older award grants from prior years). That’s because the expense is recorded as the awards vest, not all at once when they are granted, and the vesting period is typically multiple years. And it is unlikely that that expense gets recognized evenly on a straight line basis over those 2.55 years. If it was evenly spread out, that would be about $76 million per quarter (over 10 quarters e.g. 2.55 years), but it’s likely to have been at least somewhat higher than that this year and lower toward the end. As the company has had $180 million of SBC during the first half of FY’23, or about $90 million per quarter, most all of the expense relates to these RSU’s that were already out there before this year.

So you could argue that this is good news that they the expense isn’t being driven by lots of new grants this year. I’m sure there are some new grants for new employees, but a big chunk of what was granted in past years and continues to vest likely went to top executives, who have remained consistent with the company for a while now.

For comparison, I looked at what CRWD’s SBC was like when they hit $300 million in quarterly revenue in April 2021 and it was $54 million that quarter, so almost half of the $90 million MDB currently has.

When I have some more time, I’ll dig further into the structure of these to try to understand if they are pretty shareholder friendly like the large grant that TTD CEO Jeff Green has. Until then, I would agree that the high amount of SBC is at least a yellow flag for Mongo. I also wouldn’t expect it to come down very much over the next two years, given there is still probably around $600 million of SBC expense yet to be recognized over the next two years, just from prior year grants.

Profitability

Looking at the latest guidance for non-gaap loss from operations for the full current year 2023, with a range of -$8 to -$13 million. And a Q3’23 guide for a non-gaap operating loss of -$8 to -$10 million

As of the end of Q2, they had a positive YTD profit/income from operations (non-gaap) of +$5 million.

So using the midpoint of the Q3 and FY guidance, that would mean Q3 will have a non-gaap operating loss of -$9 million, bringing the YTD loss to -$4 million at the end of Q3, and implies Q4 will have an additional loss of -$7 million, bringing the full year to the midpoint of -$10.5 million loss.

And that would make the quarterly breakdown for all four quarters of FY 2023:


Non-GAAP income (loss) from operations

Q1 +$17 million income
Q2 ($12) million loss
Q3  ($9)  million loss (midpoint)
Q4  ($7)  million loss (midpoint)

So at the midpoints, the trend will be a gradual improvement vs Q2, inching closer to non-gaap operating income over the rest of the year. Any significant beats would accelerate the progression. Of course, underperformance to expectations could mean increasing losses. I’m willing to bet that they have fairly conservative expectations built into the second half of the year and are more likely to beat the next couple of quarters, unless the macro economic situation gets significantly worse (which would be bad for many companies we follow).

And again, they were originally anticipating up to -$22 million loss for the year with the initial guidance.

Cash Flow

Going into Q3 of this year, I’m reminded of an unusual/surprise they had in Q3 last year. Per the Q4 earnings transcript:

“As a reminder, in Q3, we noted that our deferred revenue benefited from several very large Atlas early renewals. We did not see a similar impact in Q4, but would like to reiterate that some of those large deals that renewed early in Q3 were originally scheduled to renew in Q1.”

So they had a cash benefit with a lot of deferred revenue (think of it like prepayments from customers) that came in during the third quarter that they didn’t expect to close (or get paid for) until Q1, two quarters later. Assuming they don’t have another surprising set of early renewals in Q3 this year, the cash flows could look disappointing to the market when they report if they are expecting to see cash flows in line with the same quarter of last year.

They may not be a big deal, but it is one thing that could get interpreted negatively in the short term when next quarter’s results are announced.

Wrap Up

I’ll leave it there. I do think there’s a lot of context to think about when looking at Mongo’s performance lately.

They faced headwinds during the first year of the pandemic when many of our other companies were seeing tailwinds. This led to a surge in growth rates as economic conditions got better over the next year or so (calendar 2021 / fiscal 2022). Now that the economic picture is more cloudy in the near term again, they are right to be cautious, and will not do as well as some others if the macro conditions are weak for an extended period. Expenses are not going to grow as much next year, like they are this year. But SBC is definitely something to keep an eye on.

I think they will beat expectations for the second half of this year, and have the potential to turn the corner to profitability and positive cash flow next year, which is no different from the timing that I believe management had expected at the beginning of this year. And MDB has the potential to see the positive impact from a better than expected macro environment very quickly.

At the end of the day, the story, to me, still feels intact and on track. At this price, I don’t see myself selling a significant amount of my MDB shares. I won’t be surprised if MDB’s stock price doubles, from here, faster than any of the other companies I currently own. But there are a lot of variables at play and it could be bumpy for a little while. My gut says MongoDB still deserves a large allocation in my portfolio, but it’s been wrong before, so I look forward to continuing to follow and see how things continue to play out.

-mekong

49 Likes

Just to add one more thought to this writeup, I was curious to look back at what their guidance was when they reported second quarter results last year.

When MDB reported their second quarter a year ago, they gave guidance for Q3 that would be +35% revenue growth at the top end, and implied Q4 growth of +33%. (this was coming off +44% actual in Q2 last year)

Ultimately, Q3 came in last year at +50% (compared to that 35% guidance)

and Q4 at +56% (compared to the +33% that had been implied in their guidance six months earlier)

So I find it interesting that they are guiding for almost the same growth rate (+34% the latest guide for Q3 this year vs +35% for Q3 last year) especially despite what they are calling a difficult comp and an expected EA sequential revenue decline next quarter.

The 18% they’ve guided for Q4 is obviously much lower than their +33% Q4 implied guide last year, which suggests that they are less optimistic (or being more cautious) about the further out activity, likely harder to predict growth at the end of the year. Q4 in particular was a very strong quarter last year so maybe they are just trying to manage expectations, and MDB management has always been fairly conservative with their guides, even going back before the pandemic.

Right or wrong, this tends to make me worry less about the low growth implied in their fourth quarter guide, as maybe they are being particularly conservative with expectations around the macro, especially european economy with growing concerns for energy costs there this winter etc. impacting overall spending, and usage on MDB’s customer’s applications.

I’m not suggesting that they are going to beat by forecasts by quite as much as they did last year and turn in 50%+ growth in the second half, especially given that overall macro trends were heading upwards this time last year while a lot more murky in the near term right now, but I do think the odds of them performing quite a bit better than expected is very possible.

and regardless, I still feel good about the longer term potential for MongoDB once world economies strengthen.

-mekong

20 Likes

Hi Mekong,

I agree with most you said about MDB… I think referring to their guidance is neglecting how they have guided in the past…

however, growth slow down is real… if nothing else, just due to comp… I wish I had paid better attention to understand this but now it looks like MDB grows in a cyclical pattern… almost one year where growth accelerates and next year it slows down a lot… whether this was inflicted due to covid or there is something inherent, I cant tell but for sure next few quarters have tougher comp and therefore, optics of growth is not going to be stronger going forward…

consider AYX for example, its on the opposite end of the spectrum where optics of revenue growth in near future is looking great and likely to accelerate in Q3 results… even though ARR growth is lot more moderate

I think these things weigh on prices and therefore, MDB is less attractive for next couple of quarters… may be it will accelerate again but I would want to see it before getting back in

7 Likes

Hi All - I wanted to add a few thoughts on MongoDB’s performance, as I had posted favorably about the company previously. I was waiting for the 10-Q to come out so that I could really understand what is happening. Overall, I agree with much of what has been said. I’ll try to offer some additional points that I hadn’t seen mentioned. They don’t necessarily improve the outlook for this year, but help rationalize the report.

  • The slowdown in revenue growth was more than I had expected. As I dug into the explanation and looked back, it’s clear MongoDB benefited from high growth in 2021 from a few digital native companies (specifically FinTech like Coinbase, gaming, food delivery). These companies are experiencing much lower (or backwards) growth this year. Because of Atlas’ pricing model, that is having an immediate impact on revenue generation through slower expansion of usage (or possibly Atlas cluster downsizing). These mid-market customers make up about 14% of total revenue.
  • Added to the digital native’s slower expansion, European enterprise customer expansion moderated. Finally, EA and its associated rev rec rules provided a tailwind to Q4 last year, which isn’t repeating this year. The confluence of these factors is definitely pressuring revenue growth for the remainder of 2023. This all highlights the variability of MongoDB’s consumption revenue model, particularly as Atlas makes up a larger share.
  • The addition of 1,800 net new total customers in Q2 was a step down from prior quarters. Most of the 37,000 total customers are self-serve, which represent small businesses and individual developers. With economic pressure, I am not surprised that this rate would slow, or more new self-serve customers opted for the free tier initially (which isn’t counted in customer count).
  • The interesting measure of customer growth to me is the large increase in Direct Sales customers, which hit an ATH net additions of 600 in Q2, versus 375 on average in the prior 4 q’s. The 10-Q tells us that Direct Sales customers make up 86% of revenue. This is where MongoDB is focusing their GTM efforts. To be fair, the definition of Direct Sales is opaque - they represent customers that are assigned a salesperson. $100k ARR customers also ticked up in Q2 to the second highest net additions, in spite of the overall pressure on expansion.
  • The large increase in OpEx this quarter and the drag for the remainder of the year primarily came from sales and marketing activities. S&M expense was up 71% y/y on Non-GAAP basis (66% GAAP), versus below revenue growth for R&D and G&A.
  1. The MongoDB World customer event in Q2 introduced new costs and associated travel. I estimate the event cost and renewed travel expense at about $10M-$15M, based on data in the 10-Q, which provides some incremental data on S&M costs. Without these new expenses, MongoDB might would reached break-even in Q2.
  2. The 10-Q provides headcount numbers for total employees and S&M. In Q2, MongoDB doubled the sequential additions of new hires in S&M over the average of the prior 4 quarters. They added 295 headcount to S&M in Q2 (up 56% annually, 16% sequentially), versus about 146 on average in the prior 4 quarters. R&D headcount only increased by 31% y/y.

This large increase in sales headcount could either be very bullish or bearish. On the bullish side, these employees will drive more activity with Direct Sales customers, the largest contributor to revenue. On the bearish side, it may indicate that more sales support is required to facilitate expansion (at least initially) than with some of our other companies (like Datadog or Crowdstrike) where expansion is toggling a setting in the Admin console.
In theory, I don’t see why MongoDB couldn’t enjoy margins and sales efficiency similar to other data-intensive software infrastructure providers like Snowflake, or even Datadog and Crowdstrike. The fact that they are approaching $1B in revenue and haven’t done so yet is concerning. They showed good progress through the prior two quarters. This will be important to watch for further backsliding.

  • The competitive landscape hasn’t shifted perceptively. DB-Engines provides a useful objective signal. MongoDB’s position relative to other databases hasn’t changed. It is still 5x more popular than the nearest multi-model alternative, DynamoDB.
  • MongoDB has healthy and improving relationships with all three hyperscalers. As we are seeing with several of our companies, the Marketplaces are driving significant new business.
  • Product announcements from MongoDB World appear to be resonating with customers. We learned that the Relational Migrator early access program is oversubscribed. That provides a good indicator of customer interest in moving more workloads to MongoDB. The relational databases are important, because those go beyond MongoDB’s base market for document-adjacent data models. And relational represents the largest segment of legacy databases.
  • As mekong pointed out, most of the customer highlights in the prepared remarks mentioned cost savings from consolidating on the MongoDB platform. This marketing message is new and aligns with what others in the market are emphasizing. I think it will resonate with customers looking to manage IT expenses by reducing their database vendor sprawl.

Giving all this, I decided to trim my MDB position (moved into SNOW). I am keeping MDB as a smaller allocation at this point, as I think there is upside potential going into next year. As we lap Q2 of 2023, the comparables become easier. If macro headwinds abate and customer businesses expand, the consumption model would accelerate revenue growth again. The large investment in sales headcount will also be ramped in 2023 and could contribute incrementally to Direct Sales growth. The foundational product thesis that MongoDB Atlas should increase its share of the transactional database market over time is still intact.

With all that said, there is more risk to the investment thesis than previously. MongoDB may keep winning share, but not grow fast enough to be interesting. The expected operating leverage may never materialize. So, I can appreciate the reactions from others of looking for more consistent and demonstrable growth elsewhere.

Thanks,
Peter @StackInvesting

145 Likes

MongoDB FQ2 2022

As we discussed last quarter, it’s important to understand that the slower than historical consumption growth is a result of slower usage growth of our customers’ underlying applications due to macro conditions. Our customers spend on our platform is well aligned with the performance of their business.

We are confident that the recent consumption trends will improve as the macro environment normalizes over time.

There may have been a slower than usual amount of consumption growth. But we need to remember that the licensing is also consumption-based, which means that any slowing of MDB’s customers’ end-customer demand will be directly reflected in the sales numbers.

Enterprise Advanced exceeded our expectations driven by upsells to existing customers.

While this is good news, the market didn’t like the comment on the earnings call where they called for negative growth of the Enterprise Advanced business. This is due to closing exceptionally large deals last year. Also, this business, while on a growth trajectory, is pretty lumpy:


Segment	Grth	%Tot	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Total	53%	100%	303.7	285.4	266.5	226.9	198.7	181.6	171.0	150.8	138.3	130.3
Subs.	52%	96%	291.6	274.6	258.2	217.9	191.4	174.6	164.0	144.1	132.5	124.9
												
Atlas	73%	64%	193.3	170.2	155.9	131.1	111.8	93.5	61.1	71.1	45.8	54.2
Svc.	64%	4%	12.1	10.9	8.3	9.0	7.4	7.1	7.1	6.7	5.8	5.5
EA/Other23%	32%	98.3	104.4	102.3	86.7	79.6	81.1	**102.9**	73.0	86.7	70.7
Total			303.7	285.4	266.5	226.9	198.7	181.6	171.0	150.8	138.3	130.3
												
EA/Other Grth		23%	29%	-1%	19%	-8%	15%				
EA/Other TTM		391.7	373.1	349.8	350.3	336.5	343.5	333.2				

I just want to remind everyone, we’re not seeing any change in deal sizes or sales cycle times. I think your point about as customers face this macro headwind, is there an opportunity for them to essentially drive more efficiency in their business? And we’re definitely seeing customers starting to do that.

It looks like utilization of the product as measured by consumption is facing some headwinds. It does not look like the business is suffering as a result of the economic headwinds encountered by MDB’s customers.

And then in terms of the second half of the year, obviously, as I mentioned earlier, we have – our effective outlook is worse than it was in June, but we’re assuming that the trends that we saw in Q2 continue for the balance of the year.

This, combined with lowering operating and net income expectations as well as significantly lower free cash flows, is what the market didn’t like.


Adjusted Annual Operating Income Guidance:
Year	Apr	Jul	Oct	Jan			
FY2020	-57.0	-60.5	-57.7	-73.0
FY2021	-74.0	-74.0	-68.5	-55.6
FY2022	-79.0	-72.0	-64.5	-35.4
FY2023	-14.5	-4.0	**-10.5**

Adjusted Annual EPS Guidance
Year	Apr	Jul	Oct	Jan	
FY2020	-1.02	-1.09	-1.03	-1.32
FY2021	-1.28	-1.25	-1.06	-1.47
FY2022	-1.32	-1.17	-0.73	-0.40
FY2023	-0.24	**-0.32**

This is the first time, including FY2021 (Corona), where annual guidance was adjusted downward.

However, if we look at revenue guidance performance , we see MDB delivering consistently over time. They beat the midpoint forecast this past quarter by 8.3%, which was better than the prior quarter as well as the same quarter last year, although lower than the recent October & January quarters.


Qguide	Apr	Jul	Oct	Jan
FY2018				42
FY2019	46	52	60	74
FY2020	83	91	99	110
FY2021	120	126	138	156
FY2022	169	186	203	241
FY2023	265	281	**302**	
								
Qbeat	Apr	Jul	Oct	Jan
FY2018				18.5%
FY2019	9.0%	15.7%	17.9%	16.3%
FY2020	7.6%	9.2%	10.5%	12.3%
FY2021	8.6%	9.7%	9.3%	9.6%
FY2022	7.8%	7.1%	11.8%	10.8%
FY2023	7.7%	8.3%

If they beat the forecasted midpoint of $302 million this quarter by 8%, they’ll come in at about $326 million, which reflects growth of 43.5%. In order to get to 50% growth, they’ll need to beat by almost 13%, which they haven’t done in almost 4 years. The primary difference now is Atlas, which grew 73% this quarter - higher growth than company growth in any other quarter. They could do it, but most likely won’t looking at historical achievements.

At the end of the day, the quarter wasn’t great. But I think it was still very good. Management openly discussed the challenges to revenue growth, which are primarily consumption-model based, the weakening of the mid-market and difficult EA comps. They also explained clearly that they feel utilization (and revenue) will get back to historical growth levels (my interpretation) once economic headwinds abate. Also, I think that Enterprise Advanced, although becoming less and less of a factor as a result of rapid Atlas growth, will have an exceptionally good Q4, making up for any macro consumption-related weakness. It has had decent growth the last few quarters, and I think the sales teams will bring in a few whales (that are accounted for using ASC 606, which requires a larger chunk of revenue to be recognized up-front on prepaid term deals) at the end of the fiscal year.

Right now, MDB has a market cap of about $18 Billion and an ARR of about $1.2 Billion ($302 guidance X 4), which reflects a ratio of 15. If they increase this by 50% over the next 4 quarters, the forward price per sales on the ARR is about 12. Historically, this is a pretty low level, and it doesn’t seem like a bad price to pay now for a company that should grow 40%+ for quite a while, has a leading position in its market and a consistently increasing TAM.

I hadn’t sold any shares as a result of earnings like many of us did and don’t expect to sell any, unless Atlas growth weakens significantly.

DJ

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Assuming 50% growth, the forward p/s is 10 not 12, no? 1.2B x 1.5 == 1.8; 18B/1.8B == 10.

Of course, today those numbers are even lower. I have to agree with you. Atlas revenue growth is still compelling.