MongoDB (MDB 1.74%) provides alternate database systems and related cloud computing services. The company went public in October 2017 at a price of $24 and has returned a whopping 534% since then.

Like most growth stocks, MongoDB has experienced stellar growth in sales. Its revenue has increased from $155 million in fiscal 2018 to $267 million in fiscal 2019. According to consensus estimates, company sales could reach $688 million in 2022.

But what will drive this growth? The database market is expected to reach $40.4 billion in annual sales by 2022. While Oracle, the market leader in the database space, is growing sales in the mid-teens range year over year, MongoDB has been growing at a far higher pace, albeit off a much smaller base. (Oracle generated nearly $40 billion in revenue last fiscal year.) 

One of the company's key products is the MongoDB Atlas, which is built for Agile teams that spend a significant portion of time building applications, rather than managing databases. The Atlas is a global cloud database service for modern applications. So why is this product critical to MongoDB's top line?

Hand in image of cloud and rings

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Atlas accounts for 40% of total sales

In the fiscal third quarter of 2020 (ended in October), MongoDB reported sales of $109.4 million, up 52% year over year. It grew subscription sales by 56% while Atlas' revenue was up 185% in the third quarter.

Atlas now accounts for 40% of total revenue with an annual run rate of $175 million, within three years since launch. But MongoDB believes the Atlas has enough steam to grow sales at a robust pace.

By leveraging cloud services, MongoDB can gain insights into customers' usage of products. This, in turn, helps the company to expand go-to-market strategies as well as its customer base. Atlas is a cloud service that allows MongoDB to deliver new features on an ongoing basis, compared to the annual release for a traditional on-premise product.

In September 2019, MongoDB announced an auto-scaling feature to Atlas which equips the product with automated capacity management. Atlas will now be able to track resource utilization metrics in real time and can scale customer deployments to match business requirements without manual monitoring of analysis.

Focus on valuable product features

Atlas provides MongoDB with "granular visibility" via user adoption and behavior, according to CEO Dev Ittycheria. This data-driven feedback loop allows the company to understand features that are most valuable to customers or that are not used by customers for their benefit.

By analyzing these data sets, MongoDB can iterate and ensure product teams are more focused on the important opportunities. Atlas also helps the company identify the way customers optimize MongoDB deployments.

During the earnings call, company Ittycheria stated, "Through database usage metrics such as increased I/O throughput or turning on backup, we can infer when an application is likely to go into production. These types of insights allow us to scalably engage with the customers, at key moments when they are likely to increase the complexity and criticality of the MongoDB deployments."

Increase in customer base

Atlas is expanding its reach in the global database market. While MongoDB is one of the most popular databases globally, Atlas allows customers to use the former's three-tier and sub-service offerings as well. This should result in customer retention and customer expansion as clients get access to MongoDB's suite of services.

Furthermore, Atlas is available on the three largest cloud providers: Amazon Web Services, Microsoft Azure, and the Alphabet's Google Cloud. Access to these cloud giants allows MongoDB to increase geographic reach and customer base.

The verdict

We have seen how Atlas is increasingly critical to MongoDB's top-line growth. The company continues to increase investments in technology and data science to find business opportunities.

It is still a small but fast-growing company in a market that continues to expand at a robust pace. The recent partnership with Alibaba will help it enter the high-growth Chinese market and further expand revenue.

MongoDB stock is not cheap. Its price-to-sales ratio stands at 22.5. But as with high growth stocks, investors are betting on the company's aggressive expansion of the top line over the long-term.