Shares of database software provider MongoDB (MDB +2.84%) are still up big since bottoming out in late 2022, but the stock got a reality check in March. While MongoDB's fourth-quarter results beat expectations across the board, the company's guidance left a lot to be desired.
NASDAQ: MDB
Key Data Points
A major slowdown is coming
MongoDB grew revenue by 27% year over year in the fourth quarter of fiscal 2024. Atlas, the company's managed database product, saw revenue expand by 34%. For the full year, total revenue grew by 31%.
Fiscal 2025, which kicked off on Feb. 1, is going to look very different. MongoDB's outlook calls for revenue between $1.90 billion and $1.93 billion, up just 14% from fiscal 2024. The consensus analyst estimate called for full-year revenue of $2.03 billion.
MongoDB expects revenue coming from non-Atlas products to decline in fiscal 2025 for two reasons. First, the company has changed its sales incentives to de-emphasize upfront commitments. The result of this shift is that revenue related to unused commitments will drop to nearly zero this year from $40 million in fiscal 2024.
Second, MongoDB got another $40 million revenue boost last year from multiyear contracts that won't repeat this year. This had the effect of temporarily improving its growth rate, making the drop-off in fiscal 2025 look more severe.
The good news is that MongoDB expects Atlas use to grow at a similar rate as the company experienced in fiscal 2024.
Should you buy the dip?
The database software market is incredibly competitive. MongoDB and its document-based database are up against a slew of open-source and proprietary alternatives. Cloud computing has brought with it an explosion of options for developers and businesses.
Even after the drubbing MongoDB stock took in March, the company is still valued at over $25 billion. That puts the price-to-sales ratio at about 13. The valuation picture looks even loftier when earnings are considered. With analysts expecting adjusted EPS of $2.50 this year, the price-to-earnings ratio sits at about 140.
There's little doubt that MongoDB is an expensive stock. Even taking into account the multiple factors that will knock down revenue this year, growth is still decelerating. MongoDB can certainly grow into its valuation over time, but the big risk for investors is that it might not.
The database software market is likely to have many winners. MongoDB could be one of them, but its sky-high valuation looks far too optimistic.
