MongoDB (NASDAQ:MDB) is disrupting the database industry. The company's innovative solutions empower software developers, helping them build applications more quickly. In particular, the company's fully managed database-as-a-service solution -- MongoDB Atlas -- is growing exceptionally quickly.

Here's why that matters.

What is MongoDB Atlas?

Databases power most websites and applications. They provide a place where information can be stored, managed, and retrieved when needed. Traditionally, relational databases have organized data in a tabular fashion (rows, columns, tables). But this requires developers to spend lots of time reformatting unstructured data upfront, and it limits database flexibility and scalability down the road. That's a big problem because many of today's popular websites and applications (think social media) produce an incredible amount of unstructured data.

Woman writing software application code on a laptop.

Image source: Getty Images.

MongoDB solves that problem. As a non-relational database (or more specifically, a document database), MongoDB allows developers to quickly store large amounts of unstructured data, which improves operational efficiency and database performance, ultimately enabling enterprises to launch applications more quickly. But there's still a problem: Databases are complicated, and managing one requires technical expertise.

MongoDB Atlas solves that problem. Atlas is a database-as-a-service, meaning that MongoDB hosts and manages the client's database on their behalf. This dramatically reduces complexity, allowing enterprises to focus resources on creating products, not managing the support infrastructure. Moreover, MongoDB Atlas is hosted in the cloud, which further reduces the cost of ownership by eliminating the need for expensive on-premise hardware.

Why it matters

MongoDB is open-source software, which is both a blessing and a curse. While it has certainly contributed to MongoDB's widespread adoption, it also means MongoDB is effectively a free product. So, in order to monetize the database, the company either sells subscription-based management tools to clients (MongoDB Enterprise Advanced) or hosts and manages the database as part of MongoDB Atlas.

In other words, Atlas helps MongoDB to convert free users into paying customers. And to incentivize clients to upgrade, MongoDB offers a free trial period and provides tools that simplify the migration from the free Community Server product to a paid Atlas subscription. Additionally, MongoDB has refined its approach to customer acquisition, focusing less on securing long-term contracts and more on simply adding as many new clients as possible.

That's a smart move. MongoDB Atlas greatly reduces the overhead costs and complexity of database management, which translates into high customer retention. In other words, getting clients in the door is the most important part.

In fact, MongoDB's net expansion ratio has exceeded 120% for the last 23 consecutive quarters, meaning the average customer spends 20% more each year. In other words, MongoDB not only keeps its customers but also generates more revenue per customer over time. That combination should continue to be a powerful growth driver.

MongoDB's advantage

MongoDB is not the only document database, but it has achieved greater developer mindshare than any rival product. In fact, according to DB-Engines, MongoDB ranks as the most popular non-relational database and the fifth most popular database overall. More importantly, its popularity is steadily trending upward.

Many market-leading relational database providers -- including Microsoft and Oracle -- have tried to copy MongoDB's non-relational document model. However, these attempts have failed to gain the same level of traction with developers. And that's MongoDB's greatest asset: Developers build applications using the tools they like, and developers like MongoDB.

That advantage, paired with MongoDB's first-mover status, has helped the company add new Atlas customers at an incredible pace over the last three years.


Q3 2018

Q3 2021


MongoDB Atlas customers




Data source: MongoDB SEC Filings. Note: Q3 2021 ended Oct. 31, 2020.

Even after this rapid expansion, the company has plenty of room to grow. MongoDB generated $543 million in revenue over the trailing 12 months, but management estimates that the company's market opportunity will reach $97 billion by 2023. In other words, MongoDB has hardly scratched the surface of its true potential.

A final word

Like many young tech companies, MongoDB is not currently profitable, and the stock trades at a pricey 45 times sales. Going forward, investors should be prepared to weather volatility, especially if the company falls short of Wall Street's expectations when it announces full-year earnings in March.

Despite the valuation, as organizations continue to digitize their businesses, part of that process will be provisioning flexible, scalable solutions to support their modern applications. And MongoDB Atlas is a perfect fit. That should help the company continue to gain market share in the coming years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.