MongoDB, Inc. (NASDAQ:MDB) UBS 2022 Global TMT Conference December 7, 2022 1:20 PM ET
Company Participants
Michael Gordon – Chief Operating Officer and CFO
Serge Tanjga – SVP Finance and Business Operations
Conference Call Participants
Karl Keirstead – UBS
Karl Keirstead
All right. Thank you, everybody. Happy to have at MongoDB. Mike and Serge worked together, they have for years. They insist their cozies enough with each other, snuggle up on the sofa together. No issues.
Michael Gordon
All good.
Question-and-Answer Session
Q – Karl Keirstead
So let’s kick it off. Obviously, your [indiscernible] last night, generally, the Street is liking it, but for those that may have missed it or missed some of the nuances, do you want to — just because it’s fresh.
Michael Gordon
Yes.
Karl Keirstead
Just spend a couple of minutes, Mike, on what you thought were the highlights?
Michael Gordon
Yes, happy to. Thank you, again, for having us to be here, and happy to do it right on the heels having reported last night.
Q3 was another strong quarter for us, 47% revenue year-over-year. Atlas continues to grow well. Atlas, 61%, and it’s now 63% of revenue, overall, really quite strong results. One of the things that we’ve talked about in terms of like how to think about the businesses, to think about new business, and then the expansion of existing business.
So we continue, despite the challenging macroeconomic environment, successfully compete and win new business. We do not see any deal slippage, elongation of sales cycles that people are talking about. We really haven’t experienced anything outside of the norm. So it’s great to see the value prop resonating and MongoDB continuing to be a priority for our customers.
When it comes to existing workloads, that’s what dictates growth in the near term. We saw a healthy recovery, not quite back to historic levels, but an improvement versus Q2 in terms of the expansion rate of existing customers. So that was great to see. It was particularly pronounced in some of the areas that have seen the greatest weakness with lower growth in Q2, so that’s the mid-market globally as well in Europe. So that was great to see.
We also think we’re beginning to see some marginal seasonal effects there, which we can talk about, so really strong overall, pleased with the revenue performance. Enterprise Advanced, our self-managed product, also really surprised to the upside, 26% year-over-year growth, and really strong continued customer adoption there. We tend not to win a lot of new customers on EA. So these are existing customers who are seniorizing MongoDB or leaning more on the MongoDB workloads. So that was really quite successful.
Kind of — and then further turbocharge or whatever going call it, multiyear deals. We saw a little bit more than normal activity there, which is great to see. And then lastly, maybe just comment on further down the income statement on the op income. Strong results there, $20 million in non-GAAP operating income, about 6% operating margin, which is great to see kind of the operating leverage of the business.
So why don’t I stop there, but generally, a really good quarter.
Karl Keirstead
So why don’t we start by digging a little bit into why the app usage recovered September, October, November? That seems a little counterintuitive to everybody. We’re in one of the roughest IT spending periods in a while. You called out a little bit of usage pressure back in July. So why in the last three months, would it have gotten matter?
Michael Gordon
Yes. So here’s a walk through. I think that our dynamic is — every company has their own dynamics. And so obviously, let me walk through kind of what we’re seeing in the consumption behavior.
So the way that revenue recognition within Atlas works, the way that consumption works for us, is a reflection of the underlying end user activity of the application, right? So, this is not more developers starting to develop application. This is not more analysts writing queries. This is not some of those other kind of like internal intra-customer dynamics. This is actually end-user behavior of our customers’ customers, right, the end users of the application.
And what we can see is we can see more usage, right, more reads, and rights of the database flowing through to that underlying activity. That was what we strengthen, and the growth rates on that improved from the lower growth rates that we have seen in Q2.
And our kind of working hypothesis, if you will, relates to some seasonal components. Let me explain kind of on the working hypothesis kind of what we mean. So we only really have six quarterly data points on Atlas overall. Atlas six years old, so to you got points.
The first few of those Atlas was pretty subscale. The fourth of those data points, Atlas is affected by COVID. So we kind of have two data points at scale, not directly influenced by the pandemic. And so obviously, you can draw a line with two data points, but your confidence that, that’s the right line is a little limited.
And so what we’ve said, though, is the behaviors that we see, because it’s across regions, because across industries, because it’s so broad-based, it’s not tied to specific industries, it’s not tied to specific applications, it’s not tied to specific use cases is so broad, mirrors the underlying behaviors of people being more active, working harder, being more intensive, if you will, which sort of maps to seasonal vacations and things like that.
And the data that we saw, we mentioned that Q2 saw a slower growth. We said — in the Q2 call, we said that August was in line with Q2. So that would sort of continue the slower growth trend. What we saw in Q3, overall, was strength, which means that September and October were quite strong. We also said in last night call that November was in line with Q3, so sort of indicating kind of that strength that you would expect from people returning, engaging more with applications as users of applications, as consumers and applications.
But again, it’s not — our customers building more or increasing their rate and pace, it’s their underlying user activity. So hopefully, that helps. And obviously, as we get more data, as we get more insights, we’ll continue to share those. But just in the spirit of transparency, we kind of want to share our latest in.
Karl Keirstead
Maybe this question gets to fundamentally business model difference versus the likes of Snowflake in AWS. But Mike and Serge you’re aware that that’s not the message that other usage-based models are conveying. In fact, Snowflake said quite publicly that they saw a usage lull in October. AWS partners are talking about a usage lull in October. Elastic said the same thing.
So maybe you could draw a distinction why that group seems to be suggesting that, and you’re seeing something totally different? Does it — maybe it gets to a fundamental difference in the model?
Serge Tanjga
Yes, I think that’s exactly right. So people like to say usage people like to say consumption. That’s more of a revenue recognition sort of similarity.
Karl Keirstead
It’s about similarity.
Serge Tanjga
It’s not a business model, right, exactly. And fundamentally, when it comes out to us, I’ll just repeat what Michael said, which is the usage that customers experience on our platform is directly related or the second derivative of the application growth that they see in the applications that they’ve built.
And we’ve seen this recovery in Q3 — in the latter half of Q3, which is, by the way, still below historical standards, so we still see a macro impact. But that is because people are interacting with their applications more.
And it’s not regional-specific. It’s not industry specific. It’s not necessarily a run up to the holidays at the retailers or the e-commerce are like provisioning more capacity. It’s much more broad-based than that. It goes to the underlying growth in the sort of application portfolio because what we now believe is seasonal dynamic of people being more active in default they are.
Karl Keirstead
Okay. I think the only other thing that might be interesting to add is if you think about that dynamic and how that plays out, if I’m a customer of MongoDB, right, I’m an organization, big or small, doesn’t matter. I’ve gone through the effort of building this application, right, which means I’ve probably taken my most scarce and expensive resources, i.e., internal developers, right, and decided this is an important application of a build.
I want and need that application to actually get used. I want end user activity. Of course, I’d rather pay MongoDB less rather than more like given a choice like who wouldn’t, right? But the reality is I want that application to be successful. I want that application to grow.
So some of the dynamics that we hear in other business models are saying, okay, I kind of — I want to prune this part of the estate or I’m not getting good ROI on that because I — maybe I shelved this to cold storage or I don’t run this many queries or whatever it is in the different business models.
Isn’t really our dynamic because you’ve gone ahead and you’ve invested in building the application in the first place, and we have this very tight linkage or kind of value equation to the bill that our customers ultimately receive, right, versus the underlying usage that they’re seeing from their customers for this application to build.
Karl Keirstead
Yes. One more on this, if you don’t mind, just because I think it’s super important to understand MongoDB. And that is what the profile of applications running on MongoDB databases look like?
Because if point you’re making is that end user activity picked up, it’d be good for us to collectively know what kind of apps run on MongoDB databases so that we can be in the business of trying to predict usage changes. It’s going to be hard exercise. But are you able to offer up at least high-level apps profile at all?
Serge Tanjga
I’ll actually maybe share an anecdote from one of our meetings earlier today where one of the investors that I talked to a bunch of our customers, with such a broad array of use cases and applications that I couldn’t no matter how much we try like be able to kind of pigeonhole you like a relatively…
Michael Gordon
Or build a use case-driven model or anything.
Serge Tanjga
And that was a great secure from somebody doing their independent research because that sort of fundamentally, we believe our value proposition. General purpose, very broad-based, whether it’s system of record, system of engagement, system of insights, whether it’s a REIT heavy or more right-intensive applications, it is very, very broad-based.
That’s fundamentally sort of the long-term opportunity here, but that does make it sort of like if you were to try to marry us to a more narrow experience other than something is very broad and macro, it usually tends to fall because of how diversified we are in.
Michael Gordon
I think the other thing that I call out, because I do see it’s important, Karl. So, the other thing that I’d call out is, if you think about the diversity of that portfolio, it really is like a portfolio. So, there’s an enormous not that could happen under the service with a particular sector or a particular flavor type of use case or whatever happening.
And usually, that all just sort of net out, right? If you think about COVID and people weren’t traveling, and there wasn’t as much hospitality activity, but there were other sectors or issues that were sort of rising. That same dynamic of things sort of offsetting each other across the portfolio is generally what we experience.
And so when we tend to call out changes, they tend to be things that are broad-based, right, because you’re not seeing — again, usually the other parts will kind of wash themselves out. And so we talk about the macroeconomic factors as others because we slide and dice in all the vertical and geographic and other things, and it’s a trend that persists across, which is the benefit of being highly diversified and being a general-purpose platform.
Karl Keirstead
So let’s move from unpacking your 3Q performance to talking a bit about what the two of you are embedding in your fourth quarter guidance. Because it sounded like what you were conveying on the call last night was that, after the recovery in usage in 3Q, it should moderate a little bit in 4Q. But Mike you just said that November was pretty strong. So that basically implies that December and January have to moderate a little bit. Why would that be? Is that the same sort of travel seasonality issue?
Serge Tanjga
That’s exactly what it is. And so if we think about fourth quarter as a whole, again, relatively limited sample but working where we got. We don’t think there’s either a positive or a negative seasonality when you look at the total quarter. But that’s the story of two pieces.
One, November tends to be the best month for the quarter. We’ve just seen that happen again. And then there’s a bit of slowdown in usage because it’s the holidays, people disconnect from their apps and that sort of slower growth persists for the rest of Q4.
And so, it’s not some incremental conservatism, it’s not calling the world to get worse, it’s, again, the intra-quarter seasonality. And overall, it should end up a wash, and therefore, not have the seasonal benefit that Q3 have.
Karl Keirstead
[indiscernible]
Serge Tanjga
Yes. Sorry. Yes, thank you so. As you think about EA and again, I think at this point in the year, it’s most helpful to think about the guide sequentially. So usually, Q4 is a sequentially strong EA quarter. And we actually are reasonably happy about our outlook for EA in Q4. However, we had an exceptional Q3.
And you — Michael mentioned sort of a couple of pieces of it. One, just upselling activity was strong across the board, macro notwithstanding. And then we have the added kicker of more than expected multiyear deals, and that means that under ASC 606, you get the entirety of the quarter of the entirety of the dollar amount recognized as revenue immediately. So just — if Q3 is higher — much higher than expected, then you won’t see that, that sequential uptick that you usually see and [indiscernible].
Karl Keirstead
Looking a little bit on the other part of the growth driver, and that’s the new business element that, Mike, you led off saying was actually pretty solid. So I’ve often thought that, that part of the business is really at its core, driven by the pace at which your customers are building new apps and therefore, creating a need to run them on MongoDB database instances. Sort of in the same way that your predecessor, Brian Robbins, of GitLab was in the seat just an hour or two ago. Just like GitLab is a beneficiary of continued help in new app development.
So basically, what you’re saying is that the new app development process, at least as it relates to Mongo feels healthy, why in a tough budget environment wouldn’t that also to get impacted? Why wouldn’t CFO say, “Look, we’ve got 100 app development projects, last for 1/3 of them proprietors on the big ones and why would that trickle down to pressure on Mongo?” You’re evidently not seeing that, which is great, but why wouldn’t you do the macro?
Serge Tanjga
Yes. So maybe I’d say a few things here because I think there are different factors. So first, yes, there continues to be significant new application development. And as the leading modern alternative, we win at least our fair share of those.
We also do see migrations, whether it be from legacy relational or other technologies. So it’s not the entirety of you wind up using both. But I think there are a couple of dynamics at play. I think in terms of customers, many will feel under pressure in a more challenged environment. But one of the pressure points that they’ll feel is not just on cost but on the need to innovate more quickly and compete and differentiate their offerings in the market.
So there’s sort of an offensive and defensive component, and different people are in different business positions. But certainly, we see plenty of folks trying to take a more offensive approach saying, “Hey, I need to be able to innovate more quickly. I’m tied to this legacy infrastructure that is slowing me down, and I want to move more quickly.”
Secondly, while it’s not our primary dynamic, we can be a source of cost savings in part because of developer productivity in part some of the speed to market and some of the things we’re talking about, in part Atlas can be a real cost saver as people get out of the business with the energy, infrastructure and people. And so, I think those kinds of value props resonate.
And I think the third thing that I’d say is, overall, even if budgets were to be flat at or even shrinking in a worst-case scenario, we have such a small share of the existing spend that our opportunity set is still so large. And given those first two points I made, we’re pretty well positioned to capitalize that.
So I’ve been pleased that we’ve been able to execute well and I’ve been pleased with the value proposition has been resonating. But obviously, it’s something that we don’t take for granted and we monitor closely.
Karl Keirstead
We’ll monitor it. Serge, you were talking a little bit ago about the on-prem A business, which you said had an outstanding quarter. Mike used the term a bit turbocharged by an uptick in multiyear deals. Why was that? Was that MongoDB induced a customer change? Do you mind describing that shift?
Serge Tanjga
Yes. Multiyear deals tend to be customer-driven. It usually happens with our larger customer where there’s sort of a track record of adding workloads onto the platform and visibility on incremental work — and the years.
Once you sort of start making that commitment and a database layer, which is very sticky, you want some pricing. We know we have pricing power in EA. We have in the past raised prices in EA. So that’s basically a customer coming and saying, “I want to have internal sort of protection certainty, whatever you want to call it, let’s do a multiyear deal.”
And they’re hard to predict, they’re the minority of the business. They tend to because of the ASC 606, and able to create lumpiness — and it’s not a new dynamic. It happens every once in a while. But when it’s a meaningful amount to be a part of the story around the quarter, we want to make sure that you guys are aware.
Michael Gordon
Yes. It’s a regular dynamic, we have a baseline forecast, but when we see something — a little bit of a step, we just were that people will take the results and sort of straight line it or do whatever if we don’t provide a little bit of context of what’s happening under the hood.
Karl Keirstead
Any possibility you saw a little bit of pull forward in the third quarter that used that number?
Serge Tanjga
Actually, no. And we definitely — as EA kept sort of — kind of as the quarter comes to the end and the forecast keeps moving up, like that was one of the first questions asked, we’re going to look at or not.
Karl Keirstead
Good. If we talked about next year, which you didn’t talk about last night, and you probably won’t until early March when report the January…
Michael Gordon
I’ll do best not say any interesting.
Karl Keirstead
Okay. Well, I’ll do my best to ask you in a way that you will say something interesting.
Michael Gordon
Absolutely.
Karl Keirstead
Maybe the way I can phrase it is my concerns are there variables that you would encourage this group to keep in mind as we model growth next year? How is that for an attempt?
Serge Tanjga
That’s great. I guess I would say two things. One is the fluid environment and just look at the story of Q2 and Q3 for us as sort of the consumption trend. And so we will learn a tremendous amount between now and March. That will determine, frankly, the starting point for the year and dramatically increase our confidence in terms of what the performance will be.
So it’s not for a desire to be secretive, but for the purposes of actually giving you accurate information that we’ll do what we always do with provided in March. Then the only other thing I will say, if you look at this year, it’s really the consistent theme in terms of strength has been the outperformance. So as you just think about that and ASC 606 dynamics, like that is up for more difficult compares on that side of the business.
Karl Keirstead
Okay. Got it. I know from covering Mongo for a long time that sometimes there can be shifts in the renewal base from quarter-to-quarter and year-to-year. So maybe just to press on that, when we look out next year, is there anything unusual to call out on the EA renewal base that might help our modeling exercise?
Serge Tanjga
No, I think the seasonality is similar to what we talked about in the past, it early Q4 is the highest renewal base followed by Q1, followed by Q2, followed by Q3.
And so — and that tends to generally rhyme with the new business and therefore the ASC 606 system that affect associated with it. However, we just told you that when you have an exceptionally strong quarter like you did in Q3 that kind of missed that pattern, but the renewal basis what we said before still holds.
Michael Gordon
Let me just double click on it just so people understand, right? So to your question, if you think about — if you’re thinking fiscal ’24, right, we just reported Q3. We just talked about a strong EA quarter. So yes, that’s a tough compare, right?
And we’ve had EA strength throughout the year. But in particular, when there are multiyear deals, which there are every quarter, but as we called out, there were a bigger factor here what that’s going to mean in Q3 of next year, as an example, is that not only will the comparable be difficult, right, you’ll see that in the denominator, but the numerator will not have the term license revenue because if a three-year deal, you would have recognized the three years of term license in the current period, right?
So that sort of exacerbates the compare. And I feel like most investors understand the compare as it relates to its impact on the denominator, but miss that the numerators kind of void from the normal term license component that would have in the recurring revenue model, right? And so as people think about things like that, that will — those will be important sort of aspects of it.
Karl Keirstead
Despite promising to say nothing, that was helpful.
Michael Gordon
We always try.
Karl Keirstead
On the margin line, you put up a great quarter as well. I guess what I’d like to understand is to what extent was the upside on the non-GAAP operating margin, a function of on-prem EA with more upfront rev rec falling through or any shift that the two of you made on gross margin trade-off, OpEx control and timing?
Serge Tanjga
So the first thing I would say is, it does begin with revenue, and it’s not just a year. That was a bit better than we expected. So just in terms of absolute dollars, delta versus guide, EA was more of it. But when it comes to Atlas, it definitely outperformed and it does — much of the raise in Q4 is actually Atlas benefit, right?
And so you’re, right, that incremental revenue as your sort of gross margin effect close to the bottom line, and that’s a meaningful portion of the improvement in the operating margin. But it’s not all. The rest of it was our contract decisions to focus incrementally on our OpEx growth.
And it sort of comes in two flavors. One is, well, so the over message that we give internally and wouldn’t be surprised to anybody in this room is that cost of capital is higher, therefore the bar needs to move higher in terms of what we find versus not fund.
And that’s what you sort of start seeing a bit of in practice as you look at our Q3 and Q4. Q3 results and Q4 revised guide, which is we revisit some of the projects that were already approved. We asked the question around the business case. So the conviction that we have and the return that we expect to have, that results in the margin impact to how we think about growth in our headcount.
And then also results in how we think about some of the discretionary expenses in the travel and internal events in particular, and that’s benefited us in Q3. That’s the part of the reason why the raise on the operating income is what it is for Q4 as well.
Michael Gordon
Okay. When we think about the gross margin profile for next year, I can think of a couple of things that might be important variables, but you tell me if they’re important or not, one is because Atlas is so vastly outgrown on EA, you’re going to get a continued mix shift to Atlas at weighs on gross margins.
And then the other slightly more nuanced thing is we’ve seen a bit of a power where some of the other software companies that have large portions of the revenues running on AWS, and they’re consuming a ton have renegotiated those deals. Mongo was an example where they press released a couple of weeks back. Is there an opportunity for Mongo to do that? And might that help you marginally on the gross margin side?
Serge Tanjga
So that is exactly the right two trends. So just to repeat. One is continued linear movement in Atlas in percent of business is to get the pressure that, that puts on the gross margin, okay? But the second one is important, which is Atlas margin itself has continued improvement. And so that delta between EA and Atlas margin is much narrower than it was the time of the IPO. So, the headwind from the first trend is less than the year.
Your second trend there’s two flavors in which we approve — we improved generally speaking, Atlas margin. One is efficiencies that we can control, ability to focus more on certain regions, could certain smaller instances of AWS to get to other cloud providers that improves our overall economics. And then the other one is the one that you mentioned, and those we work on all the time. And then the other one has been the deals when you actually get to renew a large cloud provider.
Karl Keirstead
You have one coming up by the way, renewal?
Serge Tanjga
So, we announced a new agreement with AWS at the beginning of this year.
Karl Keirstead
Okay, got it.
Michael Gordon
So this year is benefiting. And next year, we’ll lap it. And so when you’re thinking about the gross margin dynamic, that’s kind of what is the whereas the first point sort of sort of ongoing optimization that I think of is sort of related to route density and scale and things like that, that’s ongoing. But the big sort of chunky things in terms of renegotiating cloud deals, you don’t do every quarter or every year, and we have a new one of those that just kicked in at the end of January, I think it was.
Karl Keirstead
Those were — that’s an exhaustive list of questions on the print. I think we covered anything. I’ve got a few questions broadly on the business that I’d like to go to next.
But just as time winds down, if any of you have questions on the results last night or the broader business, you’ll see a QR code in front of you. You scan it, hit me with a question. It will pop up on this tablet next to me, and I’ll ask Mike or Serge, right?
Michael Gordon
Right. Very I hope it’s built at MongoDB.
Karl Keirstead
I can ask our IT guys. So let me ask you this. Mike, you mentioned a few minutes ago the legacy migration. So that’s one of the aspects of the Mongo story that we got a little bit more gas about earlier this year where we were starting to hear customers talk about running more “enterprise-grade applications” on Mongo that might have otherwise grown on an Oracle or other relational database. Can you update us on that progress and that potential growth driver?
Michael Gordon
Yes. We continue to see that as a trend. We are incredibly well positioned for new applications. But increasingly, as people reach the sort of limitations or see the brittleness of the cumbersome nature of the legacy applications and they get sort of bogged down on those, they need to replatform and refactor those, and MongoDB is an excellent choice for those. And we do continue to see that happening at scale.
And from a numbers perspective, most of Atlas tends to be new builds. And you get into a little bit of a semantic discussion of like if I’m UBS and I have an application and it’s been around for a while, on side base or some legacy technology and try to move it to the cloud and everything else?
Do I call that a new application? Is it a replatforming like you get a little bit lost in the semantics so I would sort of discourage folks on getting too deep in the weeds on this, but we’re increasingly seeing big, large organizations building mission-critical applications historically ones that used to run on relational the EA business, it’s about 1/4 of the business or relational migrations that held up in a fairly consistent even as the EA business has grown over time.
And I think we’re increasingly seeing banks, utilities, other people that have sort of the most demanding, most rigorous, highest kind of needs for guarantees of data integrity and data consistency picking MongoDB.
Karl Keirstead
Does that happen organically, like are there things that MongoDB do to encourage that? Can you turn the dials on things like sales comp to motivate them to go after those kind of workloads.
Michael Gordon
So people are focused on them. I don’t think it’s — I wouldn’t think of the sales comp dialogue, specifically. I think a couple of ways that I look at it are, first is the product needs to be there, which it now is, right?
Secondly, people need to be aware that the product is there. That’s not always the case, right? There’s still a bunch of people who — you’ve had 20 years of SQL and relation on to your belt. You think that is the gold standard. Anything else is newfangled kind of not up to snuff. And so educating people about that, right? We made now several years ago that we introduced multi-document asset sport, right?
Not everyone still knows that, right? And so there’s sort of a communications and marketing and developer awareness aspect to it. I’ve tried MongoDB six years ago, it couldn’t do A, B, and C, and we’ve continued to invest enormously in the product.
So I think it’s mostly about awareness and then sort of opportunity, right? Like if you think about the database market today, $84 billion for IDC going to $138 billion in 2026. Not every dollar of that is an RFP every year, right?
If you have an application or UBS or anywhere else, built on relational and it’s working just fine, you’re going to spend those scarce and expensive development resources to really new capability, right, new future functionality. You’re not eager to re-platform.
But we run into challenges, right, when it comes so cumbersome and so brittle that you can’t innovate, that’s when you say I really need a modern alternative. And that’s what we’re seeing happening more and more. And I would aesthetic if you think about quality of the product and the awareness, there’s also — we keep trying to reduce friction. We try to keep reducing the point in which the point of pain that you require is a customer to re-platform.
Because re-platform does require work, does require partially rewriting the application. But we’ve been doing things like MongoDB University like providing professional services. We watched the product earlier this year called relational migrator to simplify that because that’s — we don’t want it to be such that it’s only when the app is crumbling that you consider this point actually earlier in the cycle as late.
Karl Keirstead
Let’s ask two questions on the competitive front. I think when investors think about the competitive set for Mongo, conversations changed. It’s not other sub 1 billion NoSQL databases anymore. I was having that conversation 10 years ago, and I think MongoDB has won that battle. It’s more of the hyperscalers.
And so when we think about AWS facing the magnitude of revenue detail we are now. It’s possible that they want to start moving up the stack a little bit more, not just be a per minute per hour provider of compute storage capacity, but moving up more earnest into the database. And in fact, I wasn’t at AWS re:Invent, and that’s exactly their message.
So maybe you could just hit on the competitiveness versus the efforts that AWS and Azure are making to step right in your space?
Michael Gordon
You want to go first?
Serge Tanjga
Yes, why don’t I go first? So first of all, you’re right, the competitive set is and has been for a while now for hyperscalers. It’s not the incubators, it’s not the legacy, the Oracles of the world is really the right cloud provider.
And the dynamic of cooperation and competition, I think we struggle with both of them. So on the competitive side, they’re moving up the stack is not a new thing. AWS the last I heard has 17 different database offerings, relational and non-relational, sort of every player you can imagine, right? And that’s the case for a while.
So — and the reason why they want to move to the new layers because they know how strategic it is, and they know that, that sort of increases the customer walk in effectively, right? And so, we’ve been competing quite successfully for a while against them, frankly, on the strength of the product, on the strength of sort of the developer productivity and the scalability and the usability. And that sort of results we believe in the change that we’ve seen from the hyperscalers and sort of the movement of the needle from competition more in the direction of corporation.
How does that play out? As the infrastructure layer becomes more competitive to your point, as end market matures, then the value of a MongoDB customer on their platform, the hyperscaler ended better. Not only do we bring the storage and compute with the customer, but all the other services that they sell. And they go that’s a multiplier of dollars on the database spend.
And that’s resulted in what we’ve seen a meaningful change over the last, let’s say, two years of increased focus on cooperation, increased focus on working well in the team, comping their teams to in order to align incentives and that’s been a very encouraging time for us. Obviously, we don’t forget that it’s both cooperation and competition, but we’ve been encouraged by the trend.
Michael Gordon
Yes. I think there will always be a competitive angle. The other thing, I think, just even just thinking specifically about AWS is I think they’re incredibly smart, run a great business. I think they’re very customer aware every single customer I talk to is definitely afraid of cloud lock-in. And so the idea of picking a proprietary cloud native database is really unappealing to them, right?
And the fact that we can run MongoDB as a multi-cloud, where you can move from cloud to cloud, you need to reduce that lock in, it’s just so important. And so yes, of course, AWS would have to love every dollar. They got some of our dollars from a cloud standpoint, and then all the attached and ancillary dollars or a multiplier of that. So I think there will always be a competitive component. But I think deep down, they know the value in partnering with us, and that’s become clearer over the last kind of one year or two.
Karl Keirstead
Second question is more of an out-year potential risk in that Snowflake. Snowflake has communicated to everybody in the room. Their unit store vision of the transition from being a pure analytics player, just stepping into the operational database world. Why shouldn’t the investors in the audience be worried about that?
Serge Tanjga
Okay. So let’s talk about how we see the world, and then we may try towards the end to address that them may or may not mean for sort of other players. So the Northstar for us is always in the application.
So we were a company founded by developers to help other developers solve data problems, and those data problems started with the database and now we’re a broader solution development data platform. And as we think about the sort of the trend that everybody likes to talk about, which is the convergence between analytic and operational workloads.
The way we really see it play that out is that there will be more need for data analytics. Applications themselves are going to want to have access to more data and automated insights to make experience better for their end users. That’s fundamentally, we believe a developer problem. Who’s going to build that application? It will be the application developers.
As you look at what we’re doing in the field of analytics, it’s not broad, it’s not meant to turn us into a warehouse or expand their offering that way. It’s really to facilitate building that smarter application of the future, one that will require more analytics capabilities for the developer to build into the application.
And so as you think about other offerings out there, I would just encourage you to think about who is the persona that they’re targeting? Is it really the application developer or is it more like a business analysts and data scientists or of some of these into the data engineer?
They are different, different use cases, the different technical expertise and their different needs. And so as long as we continue to serve the developer, which survey the developers, you will understand how popular we are. As long as you sort of remain in that path, we have an amazing growth opportunity.
Karl Keirstead
Okay. Great. We’ve got time for one or two questions from the audience. So just reading from the tablet here, maybe Mike, just because you hit on the seasonality earlier on, why are we only seeing seasonality this year? What’s more pronounced about this year versus years past? Why?
Michael Gordon
So what I tried to say before is we don’t have a lot of history. And so we saw this dynamic last year, but with one data point, it’s hard to know if that’s a trend or not. We’re still not convinced it’s a trend, but we think it may be a trend, and that’s why it worked out.
Karl Keirstead
Okay. Good. Second question is back on the topic I was bringing up earlier about what the apps profile looks like. And the question is, well, we understand that it’s broad, assuming there’s a pretty decent indexing to things like e-commerce and digital activity, why wouldn’t there be some softness from at least that portion of your apps profile given the macro?
Serge Tanjga
May seem disappointing, but it happens to be true. It goes back to being a very diverse.
Karl Keirstead
So I don’t think there’s a disproportionate exposure to those.
Serge Tanjga
That’s right exactly. And so we said this during COVID, like in the early days of COVID, when the world was shutting down, people thought that we were the new economy database, and the Netflix and the e-commerce companies in the world who are built on MongoDB and that we were going to actually see acceleration into COVID, we didn’t.
We saw a slowdown then as well because it was sort of a macro pause for a while, which again, and we’re seeing it again today, which again speaks to just how broad-based we are. And we really go out of our way to demonstrate that with we share a customer end of oil and gas companies, old school financial services and on and on and on, they use this in a variety of ways.
Michael Gordon
And just to put it in context in terms of the size, we talked about this, I think, last quarter, but about 15% is in the mid-market and the digital natives are a minority of that, right? So when we’re talking about like diversification that will give a sense.
I think people think just because we’re modern that we assume all customer base is modern as opposed to understanding that big, large bank utilities, telcos, et cetera, et cetera.
Karl Keirstead
Why don’t we stop it there? I know some of you have 2:00 meetings. So, Mike and Serge, that was a great conversation. I enjoyed it.
Serge Tanjga
Likewise. Thanks for having us.
Karl Keirstead
A fantastic holiday you and your families.
Michael Gordon
Thank you so much.
Serge Tanjga
Thanks for having us. Good day, everyone.
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