Shares of database upstart MongoDB (MDB +4.79%) plunged 27.8% in December, according to data from S&P Global Market Intelligence.
MongoDB released its fiscal third-quarter earnings early in the month, which disappointed investors, and also announced the retirement of its chief financial officer.
However, MongoDB could be a big winner in the next stage of the artificial intelligence (AI) era. So is the downturn an opportunity?
NASDAQ: MDB
Key Data Points
MongoDB goes through some growing pains
MongoDB actually beat analyst expectations in the fiscal third quarter, with revenue growing 22% to $529 million and adjusted (non-GAAP) earnings per share (EPS) up 21% to $1.16.
However, forward guidance disappointed, with management forecasting revenue between $515 million and $519 million, sequentially down and up just 13% relative to the prior-year's fourth quarter.
That's a pretty big deceleration, so it's no surprise the stock sold off. It also didn't help that the company announced longtime Chief Financial Officer Michael Gordon would also be stepping down. MongoDB has promoted an internal candidate in an interim role but is conducting an executive search for its next full-time CFO.
Investors tend to not like C-suite turnover, especially for long-tenured executives. Combined with a disappointing earnings report, it's no wonder the stock sold off.
MongoDB has seen a slowdown over the past couple of years following the pandemic and the rapid rise in interest rates. Its Atlas database-as-a-service product is also billed based on usage, which can be more variable than the fixed subscriptions MongoDB charges for its Enterprise Advanced product. Atlas now makes up 68% of MongoDB's revenue and is growing faster than the overall company at 26%. Still, that rate is lower than the year-ago quarter when Atlas grew 36%.
The slowdown in Atlas could be due to the law of large numbers, as well as customers being cautious with their enterprise software spending as they try to figure out how generative artificial intelligence will benefit them. AI experimentation is expensive, potentially crowding out new hires and non-AI software usage at the moment.
Management sees better days ahead
MongoDB's management sees this slowdown as temporary before perhaps a big acceleration. This is because once AI applications are built and deployed, usage of the underlying database should pick up. MongoDB's document architecture is well suited to AI applications, since a document database allows for the more intuitive organizing and processing of unstructured data.
CEO Dev Ittycheria says that most customers are still in the "experimental" phase of building AI apps, but he expects MongoDB to capture its fair share of the market once those apps are built.
At $246 per share, MongoDB stock is currently down over 50% from its highs and 35% below the average analyst price target. So, this up-and-coming database company deserves a spot on your 2025 watchlist. If any signs of reacceleration and AI application adoption emerge, MongoDB could be in for a turnaround.
