Being an investor hasn't been particularly easy in the current bear market, but savvy investors also know that taking advantage of today's bargain prices can lead to life-changing returns over the long term. Investing in companies that offer essential services and, at the same time, have a long runway to grow can be a smart way to maximize upside while limiting downside. One business that fits the bill is MongoDB (MDB 0.81%).
MongoDB has crushed the market since going public in 2017, producing returns of 678% to shareholders relative to S&P 500's 43%. Here are three reasons why buying MongoDB shares now can potentially lead to similar rewards for long-term investors.
1. A prominent role in powering today's modern enterprises
What do people do anytime they are looking to buy a product, subscribe to a service, or learn information on any topic? They reach for their mobile phone or computer. We're living in a digital-first world. And businesses, in line with consumers' preferences, have pivoted quickly to create an online presence. Not only are they simply creating consumer-facing websites and apps, but they're also automating the behind-the-scenes processes such as orders to suppliers, delivery of products, and processing of payments.
Almost every company in today's age is a tech and software company. And at the heart of each working software app is a database like MongoDB (DB stands for database) that keeps a record of every transaction and event and allows different parties to access that information in a timely manner. A database is like that part of our brain that stores memories. It is the glue that ties the various pieces of an app together so business can fulfill various tasks such as delivering orders, presenting bank account information on mobile apps, and reserving tickets for events.
Image source: Getty Images.
MongoDB's design is based on a relatively new paradigm: a "NoSQL" database. Unlike traditional "relational" databases -- where data is stored in a fixed predefined format of rows and columns -- NoSQL offers a more flexible approach that allows software developers to adopt the ever-evolving requirements of businesses more easily. The ultimate outcome is faster speed and lower cost to develop and enhance software.
NoSQL databases are still relatively new, and MongoDB is not the only game in town. However, it is quickly becoming a go-to option for businesses.
2. Tapping the tailwinds of cloud adoption with Atlas
MongoDB, with its growing popularity, has grown its customer count over 10 times from 3,200 at the end of fiscal 2017 (ending on Jan. 31, 2017) to 35,200 at the end of its recently reported first quarter of fiscal 2023 (ending on April 30, 2022). The downloads of MongoDB's free version -- which introduces developers to the product and builds the pipeline for paid business subscriptions -- reached a total of 265 million on April 30 since the launch of the product in February 2009. And here is the kicker: 90 million of those downloads have come in the past 12 months alone, which underscores the growing momentum behind MongoDB.
MongoDB is also aiding its customers' journey to the cloud with its Atlas product -- the company's cloud-based full-service offering. Clients have the flexibility to set up Atlas in any of the major cloud environments such as Amazon's Amazon Web Services or Alphabet's Google Cloud Platform. As a customer's data grows, Atlas allocates more storage, and as the traffic to the database goes up with more users accessing apps, Atlas allocates more computational resources. With Atlas, MongoDB is eliminating the operational complexity for its clients, allowing them to focus on what's truly important for their business rather than having to spend time managing databases.
With that great traction, in the recently reported quarter, MongoDB accelerated its revenue sequentially -- growing 57%, relative to 56% and 50% over the previous two quarters -- to reach $285.4 million. Revenue driven by Atlas -- the primary driver of the business at this point -- grew by a very impressive 82% and now makes up 60% of total revenue.
The company is not profitable yet, but is headed in the right direction -- gross margin in the first quarter improved to 72.6% from 70% a year ago, and operating loss lowered to negative 26.6% from negative 33.8% a year ago.
3. A huge market opportunity awaits
Despite a possible economic slowdown, and even a recession, MongoDB expects to hold its ship steady in the second half of 2022. The company lowered its fiscal 2023 revenue guidance by a relatively negligible 3% attributable to macroeconomic conditions, and still expects to grow year-over-year revenue by over 35% to about $1.18 billion.
IDC estimates the database software market to be around $85 billion in 2022 and projects it to reach $138 billion in 2026. At its current forecast revenue of about $1.18 billion for fiscal 2023, MongoDB has a huge runway in front of it.
Databases are essential for the functioning of modern enterprises, and they're not an expense businesses are likely to cut. MongoDB is becoming a top choice in the increasingly popular NoSQL database category. With shares trading close to their three-year low price-to-sales ratio of around 18, now may be a great time for investors to take a look at this promising young company.
MDB PS Ratio data by YCharts
