What happened
Shares of MongoDB (MDB +4.89%) rose by 28.9% in December 2022, according to data from S&P Global Market Intelligence. The developer of next-generation database management systems shocked Wall Street with fantastic third-quarter results early in the month, and as of early January, the stock has held onto a large portion of the gains that followed that report.
So what
MongoDB reported its Q3 results on Dec. 6. Its top line rose by 47% year over year to $334 million, beating the analysts' consensus estimate by 10%. On the bottom line, the average analyst expected a net loss of $0.17 per share, but MongoDB delivered an adjusted net profit of $0.23 per share instead. Management also set bullish guidance targets for the fourth quarter.
Investors quickly embraced these fantastic results, and MongoDB's stock rose 23.2% that day alone. A couple of smaller bumps followed as analysts published their analyses of MongoDB's results and prospects.
NASDAQ: MDB
Key Data Points
Now what
December's jump was a welcome change of pace to end a rough year. In 2022, MongoDB's stock declined month-over-month eight times, only ending four months higher than it began them. The three largest price drops were also centered around earnings reports, which consistently exceeded Wall Street's expectations, but still failed to impress investors amid the market's mad rush away from unprofitable growth stocks with lofty valuations. All told, MongoDB's stock took a 62.8% haircut in 2022.
The company's long-term growth story is still robust, as MongoDB's developer-friendly and simple-to-maintain databases find their way into more of the apps and systems people use every day. But MongoDB's financial model is tightly focused on revenue and user growth rather than on achieving sustained profitability. That focus may have to change before the share price can climb back up to its former range.
It's a long way back to the all-time highs of November 2021, and a full recovery will take some time. Even after the brutal price cuts of last year, the stock still trades at a nosebleed-inducing 10 times sales. For management to spur the price higher from here, its best bet would be to deliver consistently positive earnings and/or free cash flow, giving investors better data upon which they can hang their fair value estimates.
However, it's probably much too early for MongoDB to enter a profitable chapter in its history. There is still an all-out gold rush for more developers and projects, and MongoDB is far from the only cowboy in town. Price increases and other profit-boosting moves would most likely send prospective customers to one of its many rivals, shrinking the revenue platform from which it will generate shareholder value in the long run.
If MongoDB's management were to suddenly switch gears from chasing maximum growth to aiming for steady profits, the stock price would probably soar. But hold your horses -- this would be a terrible idea in the long run. So don't get your hopes up for any major shifts in this direction in 2023 or the next few years.
