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Why MongoDB Rose 12.8% Last Week

By Billy Duberstein – Dec 12, 2021 at 11:00AM

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The company reported blowout earnings, defying pressure in the SaaS sector.

What happened

Shares of document database company MongoDB (MDB 1.56%) surged 12.8% over the past week, after the company reported strong third-quarter earnings on Monday, December 6.

Like other high-growth tech stocks, MongoDB had sold off over the prior month heading into earnings. However, MongoDB looks to be one of the few high-growth software companies reporting strong enough results to mitigate concerns over higher interest rates.

At a time when many SaaS companies find themselves 20%, 40%, or even more than 60% below their all-time highs, MongoDB has been a relative winner, as the stock is only 14% below all-time highs after this week's surge.

Hands on a keyboard with animated graphs overlaid on top.

Image source: Getty Images.

So what

Last quarter, MongoDB grew revenue 50%, handily ahead of analyst expectations. While its overall net losses widened, even its negative bottom line also came in better-than-expected.

Of course, a lot of high-growth software stocks have beaten expectations this earnings season and still sold off. So what was the difference with MongoDB? One difference is that it's posting accelerating growth recently, where the growth rate actually increases, rather than the decelerating growth seen by many of its peers.

MDB Revenue (Quarterly YoY Growth) Chart

MDB Revenue (Quarterly YoY Growth) data by YCharts

How is MongoDB accomplishing this? Well first, it appears to be a pretty disruptive product to the huge database industry. CEO Dev Ittycheria said in the release:

We believe a key driver of our success has been the early, but growing, trend of customers choosing MongoDB as an enterprise standard for their future application development. Our success across industries and a wide variety of use cases puts us in a great position to build even deeper relationships with our customers over time.

Second, MongoDB was traditionally deployed on-premises, but its cloud database platform, MongoDB Atlas, is now taking over as a majority of revenue, and it's growing much faster. Last quarter, Atlas revenue rose a whopping 84%, reaching 58% of revenue.

When a higher-growth product or segment begins to overtake a slower-growth segment within a company, results can accelerate – and usually, stock prices follow.

Now what

To be sure, MongoDB is not a cheap stock. Shares currently go for about 40 times sales, which still leaves it vulnerable to rising interest rates next year. However, MongoDB also seems to be differentiating itself in a huge market, and also seems to be executing quite well.

While it's hard to recommend a stock that expensive, MongoDB has rarely ever been "cheap." Therefore, long-term investors without a position may want to dive deeper into MongoDB today, and keep their eyes peeled for any further valuation-driven pullbacks.

Billy Duberstein owns MongoDB. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends MongoDB. The Motley Fool has a disclosure policy.

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