Enterprise software companies are facing a challenging environment. Businesses are looking to cut costs and save money, and the appetite for expensive new tech projects has waned. Winning new customers and convincing existing customers to expand usage is becoming more difficult.
MongoDB (MDB 4.83%) and Confluent (CFLT 2.98%) stand out as software providers that are holding up better than most in these circumstances. By offering customers a way to simplify operations and potentially reduce costs, both companies are still putting up impressive numbers.
MongoDB
Nearly two-thirds of MongoDB's revenue in the first quarter of fiscal 2024, which ended April 30, came from the company's cloud-based Atlas database service. While MongoDB's core database software is open source and can be downloaded and run anywhere, it's clear from Atlas's impressive growth that developers and businesses want a managed option that removes complexity.
MongoDB's revenue grew by 29% year over year in the first quarter, while Atlas revenue jumped 40%. There were 41,600 customers paying for Atlas at the end of the quarter, up from 33,700 one year prior. While businesses, in general, are becoming cautious with spending and looking for ways to cut costs, MongoDB's momentum hasn't taken a hit.
Database software tends to be mission-critical, so once a company puts a workload on Atlas, that workload is likely to stay put. MongoDB is having no trouble winning new workloads, even in the current economic environment. During the first quarter, the company added a record number of new workloads from existing customers.
Consumption trends are weaker than they were before inflation and rising interest rates started putting pressure on businesses, but that's to be expected. Atlas revenue from a particular application depends on the resources that the application needs, which in turn depends on the usage of that application. Slowing growth for a MongoDB customer will lead to slowing growth in that customer's spending on Atlas. By winning a record number of new workloads, MongoDB is planting the seeds for stronger growth once the economic environment improves.
MongoDB is not a cheap stock by any means. The company is valued at nearly $27 billion, or roughly 18 times guidance for fiscal 2024 revenue. MongoDB is profitable on an adjusted earnings basis and on a free cash flow basis, but GAAP net income has remained elusive. Based on adjusted earnings guidance, MongoDB's price-to-earnings ratio tops 250.
While MongoDB stock trades at a hefty premium, the company is well-positioned to grow rapidly for many years to come. Database management software generates around $80 billion in revenue each year, so MongoDB has only begun to scratch the surface of its long-term growth opportunity.
Confluent
While databases store data, Confluent's platform enables that data to move. A modern business generates data and consumes data in a lot of different places. An application running in a public cloud may need to react in real-time to something that happened in an application running in a data center, for example. Or a customer placing an order may need to trigger multiple actions.
Confluent's product is built around Apache Kafka, an open-source event streaming platform co-created by Confluent's founders. Confluent's platform takes Kafka and layers additional, propriety features on top. Kafka is a complicated piece of software, and many of Confluent's additions ultimately make it easier to use. Confluent's cloud-based service is fully managed, freeing businesses from much of the administrative burden of keeping instances of Kafka up and running.
This pitch is resonating with Confluent's customers. Revenue jumped 38% year over year in the first quarter to $174 million, and there are now 1,075 customers spending at least $100,000 on Confluent's platform annually. Confluent's cloud product reached $74 million in revenue, up 89% year over year.
While businesses are being careful with spending in an uncertain economy, any business that already uses Kafka but manages it in-house has the potential to save money by moving to Confluent's platform. Confluent argues that it can save Kafka users money not only by taking over much of the monitoring and administrative tasks, but also by running the software on Confluent's optimized cloud infrastructure. Any product that can deliver meaningful cost savings is going to be a winner in the current economic environment.
Like MongoDB, Confluent is a pricey stock. The company is valued at $10 billion, which works out to 13 times guidance for full-year revenue. Confluent is also not profitable, even on an adjusted basis, and it's burning cash each quarter. However, Confluent is positioning itself as the glue that holds together complex IT infrastructures, and its impressive growth rate is a strong sign that companies are buying into that vision.
