These 2 SaaS Stocks Are Getting Crushed Right Now. Is Wall Street Wrong?

The stock market has gotten stuck in a tailspin, and even brief efforts to break out of it Wednesday failed to spur a lasting recovery. After the market inched higher in the opening minutes of the trading session, more worries about the economy seemed to take hold. In the end, the Dow Jones Industrial Average (^DJI -0.37%), S&P 500 (^GSPC -0.36%), and Nasdaq Composite (^IXIC -0.27%) were all down, albeit less than 1%.

Data source: Yahoo! Finance.

Some investors took solace in the fact that the Nasdaq's decline was smaller than the broader S&P 500's. However, substantial declines for software-as-a-service (SaaS) stock giants MongoDB (MDB -1.05%) and Okta (OKTA -0.92%) suggest that there could be more pain to come. Below, we'll look more closely at why the SaaS stock universe seems more uncertain than ever, and what it could take for the industry to regain investor confidence.

A major drop for MongoDB stock

Shares of MongoDB were down more than 9% in after-hours trading Wednesday afternoon. The cloud-based database platform provider continued to see impressive growth, but it apparently wasn't quite impressive enough to satisfy shareholders.

Still, on their surface, MongoDB's numbers looked plenty strong. Second-quarter revenue for the period ending July 31 was up 53% year over year to nearly $304 million. The company's cloud-based Atlas platform helped lead those revenue gains, with sales from the product climbing at an even faster 73% pace. MongoDB has been quite successful getting customers to make the transition to the cloud, as nearly two-thirds of total revenue for the period came from Atlas customers.

However, not all the news was good. MongoDB's losses widened from year-ago levels, even after taking accounting-related adjustments into account. Cash outflows also accelerated.

The big question is whether MongoDB can keep up its pace of sales growth and eventually make the transition to sustained profitability. However, that's not going to happen in the current fiscal year, as MongoDB's guidance suggests full-year sales around the $1.2 billion mark and adjusted losses of between $0.28 and $0.35 per share. Given the high hopes that investors had, MongoDB will have to do better going forward in order to get a better reception from its shareholders.

Okta tops forecasts but still sees a big share-price decline

Even more confusing was the drop for Okta. Shares fell 12% in after-hours trading despite what looked like a good second-quarter report for the provider of cloud-based identity protection services.

Okta's numbers for the quarter ending July 31 also showed sustained gains. Total revenue rose 43% to $452 million, led by a 44% rise in subscription-based revenue. Subscription backlog figures rose 25% year over year to $2.79 billion, including $1.50 billion that Okta expects to realize within the next 12 months. Calculated billings were up 36% from year-ago levels. Adjusted losses narrowed very slightly to $0.10 per share.

Moreover, Okta increased its forecasts for revenue and other key metrics. The company expects full-year revenue of as much as $1.82 billion, which would represent a 40% growth rate from the previous year's final numbers.

However, investors still might fear slowing growth, as Okta predicted only a 32% to 33% rise in third-quarter revenue. With full-year losses likely to come in between $0.70 and $0.73 per share, investors who are hungry for profits aren't going to get what they want from Okta in the near term.

That attitude might seem impatient for long-term investors. But with the change in macroeconomic conditions, you can likely count on seeing similar reactions from many companies whose growth trajectories could take several years to reach their full potential.