MongoDB (MDB 1.61%) has generated impressive gains since its IPO. The database management software maker went public at $24 a share in October 2017, and it now trades in the mid-$250s with a market cap of $19 billion.
It impressed investors with its rapid growth, rising gross margins, and exposure to the booming artificial intelligence (AI) market. But can it expand and evolve into a trillion-dollar company by 2050? Let's review its business model to find out.
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A niche player in organizing databases
MongoDB's database management platform helps its clients store large amounts of unstructured data more efficiently. Its cloud-based service, MongoDB Atlas, locks its customers into recurring subscriptions. It serves more than 49,000 customers across the world and works with over 1,000 tech and service partners.
MongoDB can be directly integrated into larger cloud infrastructure platforms like Amazon Web Services (AWS), Microsoft Azure, and Alphabet's Google Cloud Platform (GCP). Those cloud platforms all provide their own database management services, but MongoDB is a more flexible option for companies that use multiple cloud platforms or don't want to tether themselves to a single cloud infrastructure giant.
MongoDB only controls a low-single-digit slice of the global database market, which IDC expects to expand at a compound annual growth rate (CAGR) of 14% from 2023 to 2027. However, the secular growth of the generative AI market could accelerate that expansion and drive more companies to upgrade their database management services.
NASDAQ: MDB
Key Data Points
How fast is MongoDB growing?
From fiscal 2018 to fiscal 2024 (which ended this January), MongoDB's revenue increased at a CAGR of 40%. Its adjusted gross margin rose from 75% to 77%, and its adjusted operating margin improved from negative 49% to positive 16%.
But like many other cloud-based software companies, MongoDB currently faces macro headwinds, which are driving many companies to rein in their spending. It expects its revenue to only rise 12% to 13% in fiscal 2025, while analysts expect its revenue to grow at a CAGR of 18% from fiscal 2024 to fiscal 2027.
That slowdown might be disappointing relative to its previous growth rates, but MongoDB could still expand at a faster rate than the global database market. Its stock also doesn't seem terribly expensive at 10 times this year's sales.
During its latest conference call in May, CEO Dev Ittycheria said its new generative AI database applications would "reduce the time, cost, and risk of modernizing legacy relational applications." In a jab at older first-party databases, Ittycheria said the "flexibility required to handle a variety of different data structures is fundamentally at odds with legacy databases that rely on rigid schemes" -- and that key difference "makes MongoDB's document model such a good fit for these AI workloads."
But could MongoDB become a trillion-dollar stock?
If we optimistically assume MongoDB can grow its top line at a CAGR of 15% from fiscal 2024 to fiscal 2050 as it benefits from the expansion of the database and generative AI markets, it would generate $55 billion in revenue by the final year. If it's still trading at 10 times sales by then, it would be worth $550 billion.
That would represent a gain of nearly 2,800% from its current price, but it would be slightly past the halfway point toward joining the four-comma club. So instead of wondering if MongoDB will ever become a trillion-dollar tech giant, investors should focus on its ability to use its flexibility to capitalize on the growth of the AI market and disrupt the legacy leaders. They should also see whether it can narrow its net losses and finally generate stable profits. If it can accomplish those goals, it could generate much bigger gains than Amazon, Microsoft, Google, and other cloud software giants by the middle of the century.
