MongoDB (MDB -2.40%) released better-than-expected quarterly results last week. Yet because of the recent tech sell-off, the stock price remains approximately 30% below its February all-time high. So has this tech company become an attractive investment opportunity?

Disruptive database model

MongoDB is disrupting the rigid traditional relational database model. The company's database system, based on a document model, allows developers to use simpler and more flexible structures to store and organize data.

Initially, the company offered its Enterprise Advanced solution for customers to host databases in their data centers. Then, with the explosive growth of cloud computing over the last several years, it completed its portfolio with its cloud-hosted database-as-a-service (DBaaS) solution, Atlas. 

Man using laptop for working with cloud applications.

Image source: Getty Images.

So during the fiscal fourth quarter, which ended on Jan. 31, MongoDB delivered a strong performance. Revenue increased by 38% year over year to $171 million, boosted by Atlas. The DBaaS solution represented 49% of total revenue, up from 41% in the prior-year quarter, after having accelerated to 66% year-over-year growth, compared to 61% during the previous quarter.

More importantly, the company increased its number of customers by more than 2,200 during the last quarter to reach a total of more than 24,800 customers. That's a positive development for the long term, as those new customers will contribute to revenue growth by increasingly leveraging MongoDB databases to develop their applications.

Profitability remains far away

However, the company must deploy significant resources to remain competitive and generate that strong growth. Being disruptive doesn't mean being alone. And many competitors, including large tech players, now also offer database systems based on the document model. For instance, Amazon supports DocumentDB, and Oracle developed a similar solution in addition to its legacy relational database offerings.

So MongoDB kept innovating to develop a differentiated portfolio. As an illustration, it released a multi-cloud version of Atlas in October. That means customers can easily migrate and switch their Atlas databases across cloud vendors to avoid vendor lock-in. MongoDB also recently enhanced its Atlas solution with extra storage and search capabilities.

Those types of innovations require significant investments, though. During fiscal 2021, the company increased its research and development expenses by 38% year over year to $205 million, which corresponded to 35% of revenue. In addition, it spent 55% of its revenue on sales and marketing expenses.

As a result of those large and increasing expenses relative to revenue, losses under generally accepted accounting principles (GAAP) worsened to $267 million in fiscal 2021, compared to a loss of $176 million the year before.

And profitability still seems far away. During the last earnings call, management indicated that the aggressive investments will continue. As a result, it expects non-GAAP (adjusted) losses in a range of $74 million to $84 million in fiscal 2022, compared to a non-GAAP loss of $58 million during the last fiscal year.

You should keep in mind that non-GAAP numbers exclude significant costs, such as share-based compensation ($149 million in fiscal 2021). But the point is to realize that losses should keep increasing in fiscal 2022 while management anticipates revenue growth to decelerate to 28%, based on the midpoint of revenue guidance range of $745 million to $765 million.

MDB Revenue (Annual YoY Growth) Chart

MDB Revenue (Annual YoY Growth) data by YCharts

Not a cheap stock yet

Leaving aside the company's operating performance, the stock price dropped by 30% from its February all-time high partly because of the recent tech sell-off. Yet the market still values the company at a lofty price-to-sales ratio of 29.

Granted, if MongoDB can sustain strong revenue growth while improving profitability over the long term, it's poised to thrive by increasing its share in the vast database market that will grow at a compound annual rate of 11% to $97 billion in 2023, according to the research outfit IDC. 

But the recent tech sell-off wasn't pronounced enough for MongoDB to be considered a cheap stock yet. The company's high valuation indicates investors are already pricing in spectacular performance going forward, despite decelerating revenue growth and increasing losses.