What happened
Shares of MongoDB (MDB -1.83%) popped 14.7% this week, according to S&P Global Market Intelligence. The modern cloud database platform put out a strong earnings report that beat analyst expectations, leading investors to bid up the stock. At one point, shares of MongoDB were up 16.3% this week.
So what
On June 1, MongoDB released its Q1 results for the three months ending in April. Revenue was $285 million in the period, up 57% year over year, while adjusted earnings per share (EPS) hit $0.20. Both numbers beat analyst expectations for the quarter, causing investors to bid up the stock by 18.5% the day following the report.
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MongoDB is seeing strong growth from its Atlas platform, which grew revenue 82% year over year in the quarter and now makes up 60% of overall revenue. The company also launched a multiyear partnership with Amazon Web Services (AWS), a competitor/cloud supplier, with the goal of migrating on-premise database customers to MongoDB Atlas powered by AWS. Given that AWS is the leader in cloud infrastructure services, this partnership can hopefully bring in more and more customers to MongoDB's platform.
As of the end of April, MongoDB had 35,000 customers around the world. For the full fiscal year that ends next January, management expects to bring in between $1.172 billion and $1.192 billion in revenue and to have a slight non-GAAP loss from operations. Since the company is still investing heavily for growth, investors shouldn't be concerned that the company isn't making much money yet.
Now what
After its rise, MongoDB has a market cap of $19.5 billion. If it can hit the high end of its full-year guidance, the stock will trade at a forward price-to-sales ratio (P/S) of 16.3. This is well above the market average of 2.67.
Does this mean MongoDB is uninvestable? No. But it does mean you need to expect the company to continue to have high gross margins (73% last quarter), obtain strong operating leverage over the next five years, and maintain its strong double-digit revenue growth. If this continues, MongoDB could be a good investment, even at a P/S above 10.
