MongoDB's (MDB 0.13%) stock price soared 18% on Aug. 30 after it posted its latest earnings report. For the second quarter of fiscal 2025, which ended on July 31, the database management software provider's revenue increased 13% year over year to $463.8 million and exceeded analysts' expectations by $13.9 million. Its adjusted EPS declined 25% year over year to $0.70 but still cleared the consensus forecast by $0.22.
For the full year, MongoDB expects its revenue to rise 14%-15% as its adjusted EPS falls 26%-30%. That's higher than its previous outlook, which called for its revenue to grow 12%-13% and for its adjusted EPS to decline 31%-35%.
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MongoDB's stock is down nearly 30% year-to-date even after its post-earnings pop, but its current price of about $290 a share still marks a gain of over 1,100% from its IPO price of $24 in 2017. Could it follow the lead of other tech companies and split its high-flying stock to attract some more attention from retail investors?
Understanding MongoDB's business
Before we discuss a potential stock split, we should understand MongoDB's business model. Its namesake platform helps companies store large amounts of unstructured data in a non-relational database. That differentiates it from traditional relational databases, which store their data in rigidly structured tables and rows. Generally speaking, non-relational databases can be more easily scaled and customized for specific tasks than relational ones.
MongoDB also provides a cloud-based service, Atlas, which helps its clients analyze that data through recurring subscriptions. It serves more than 50,000 customers worldwide and works with over 1,000 tech and service partners.
Large cloud infrastructure providers like Amazon, Microsoft, and Oracle offer similar non-relational database management services, but they also lock their customers into their larger somewhat proprietary ecosystems. That makes MongoDB -- which can be directly integrated into AWS, Azure, and other cloud platforms -- a flexible option for companies that are using multiple cloud services.
NASDAQ: MDB
Key Data Points
From fiscal 2018 to fiscal 2024 (which ended this January), MongoDB's revenue rose at a compound annual growth rate (CAGR) of 40%, its adjusted gross margin expanded from 72% to 77%, and its adjusted operating margin improved from negative 49% to positive 16%. However, its top-line growth has gradually cooled off over the past three years.
|
Metric |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
|---|---|---|---|---|---|
|
Revenue growth |
58% |
40% |
48% |
47% |
31% |
|
Adjusted gross margin |
72% |
72% |
73% |
75% |
77% |
|
Adjusted operating margin |
(13%) |
(8%) |
(3%) |
5% |
16% |
Data source: MongoDB.
Its outlook for 14%-15% revenue growth in fiscal 2025 would also represent its slowest annual growth rate since its IPO. It mainly attributes that slowdown to the macro headwinds, tough year-over-year comparisons to some big multiyear deals in fiscal 2024, and the slower growth of its non-Atlas services.
It also expects its adjusted operating margin to dip to about 10% this year as it expands its sales teams and laps the robust growth of its higher-margin Atlas business in fiscal 2024. That's why it expects its adjusted EPS to drop by double digits.
A stock split wouldn't make its stock any cheaper
At $290 a share, MongoDB still looks expensive at 121 times this year's adjusted earnings and 11 times this year's sales. It might have justified those valuations when it was still generating 30%-40% sales growth, but those hypergrowth days could be ending. Microsoft, which is much bigger but growing at a similar rate with double-digit earnings growth, trades at just 31 times forward earnings.
MongoDB also increased its number of outstanding shares by nearly 50% since its IPO, and that dilution could keep its valuations elevated. Its insiders have also sold nearly eight times as many shares as they bought over the past 12 months.
A stock split would reduce MongoDB's trading price, but it wouldn't make it fundamentally cheaper because it would merely carve a single share into smaller slices. A stock split would make it cheaper to trade options since a single contract is tied to 100 shares, and it would make it easier for MongoDB to dole out its stock-based compensation. So unless you're an options trader or a MongoDB employee, a stock split wouldn't mean much to the stock as a long-term investment.
MongoDB has never split its stock, and I'd be surprised if it suddenly jumped on that bandwagon. But if it did, I wouldn't rush to buy it -- since it still looks incredibly expensive relative to its growth potential regardless of its trading price.
