Shares of enterprise database upstart MongoDB (MDB +2.41%) fell this week, with the stock down 14.5% as of Thursday at 1:30 p.m., according to data from S&P Global Market Intelligence.
MongoDB had been a victim of the first half of the year's "SaaS-pocalypse," in which software-as-a-service stocks sold off hard amid fears of AI disruption.
However, from the end of June through the early part of earnings season, software stocks had rebounded strongly, as most companies hadn't yet seen any disruption to their businesses.
So, MongoDB had already seen its stock rise through this earnings season, heading into this week's report. While the company delivered strong results, apparently, investors were looking for a bit more.
NASDAQ: MDB
Key Data Points
MongoDB beats across the board, except maybe its as-a-service offering
In its fiscal second quarter, MongoDB grew revenue 30.5% to $771.8 million, with adjusted (non-GAAP) earnings per share growing 90% to $1.90. Both figures handily beat analyst expectations. Not only that, but MongoDB also guided well above analyst expectations for the current quarter and raised its outlook for the year.
So, what was the problem? Well, even after this week's sell-off, MongoDB trades at about 59 times this year's adjusted EPS estimates, and just over 10 times this year's revenue estimate. That's not overly expensive relative to where software stocks used to trade, but it's a more suspect valuation in the age of AI uncertainty.
Second, MongoDB had a curious mix of revenue last quarter, with its Enterprise Advanced segment growing 36%, but its cloud-delivered as-a-service offering, Atlas, growing at just 29%. Enterprise Advanced is a subscription offering that large enterprises run on their own on-premises, private cloud, or hybrid infrastructure. Atlas, on the other hand, is a usage-based database-as-a-service offering delivered through the cloud. In recent years, the Atlas segment has typically grown at a higher rate, and it now accounts for over 73% of total revenue.
So, the fact that Atlas is now growing more slowly, even as Enterprise Advanced accelerates, may have given investors pause, given that Atlas is now the largest revenue driver.
Image source: Getty Images.
MongoDB could be an AI winner
MongoDB's flexible database architecture could eventually become an AI winner as artificial intelligence migrates from the hardware-based infrastructure build-out to the proliferation of AI-powered software and apps. While investors haven't seen the massive acceleration in growth we've seen in some other software companies, such as those in the cybersecurity sector, MongoDB is still posting strong, steady growth.
For those looking for opportunities in software amid this year's AI-driven disruption fears, MongoDB is a name to add, or at least put on one's watch list.
