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Reviewing Mongo’s latest quarter and its outlook for indications of a durable growth reacceleration
There is a well-known saying that says, “everything old is new again.” It is actually the title of a song from the 1970s, but the phrase antedates the song by a considerable span of years. Saying that everything old is new again can be the case with stocks as well. MongoDB, Inc. (NASDAQ:MDB) was a smoking hot name, oh, say, five months ago when it made an all-time high at $590. Since that point, the shares fell by as much as 45%, before recovering by about 55% when the company reported exceptional numbers in its latest quarter and announced what I believe will be a seminal partnership with AWS.
The shares are still down by about 25% from their all-time high, and, of course, their valuation has compressed more than that given the beat-and-raise quarter the company reported in the last few weeks. Interestingly, and perhaps pregnantly, Mongo’s revenue growth has noticeably reaccelerated since the shares made their high point.
For readers unfamiliar with MongoDB, it is the leader and pioneer in a market segment known as NoSQL, a non-tabular database that comes in a variety of different flavors. The Mongo technology is based on what is known as a document format. NoSQL, as will be explained later, has become the database of choice for the development of new applications and for the modernization of older ones.
Mongo itself has 2 basic products. Atlas is the company’s key offering. It is a multi-cloud data base that runs on the platforms of all of the significant hyper-scalers. It typically represents almost 60% of Mongo’s revenues, and during the last 3 quarters its growth has reaccelerated to greater than 80%. While the growth of Atlas and the count of new Atlas customers has been at unexpected levels, it would not be prudent to imagine that the rate of growth seen over the last several quarters can persist.
Mongo’s other offering is called Enterprise Advanced. Enterprise Advanced uses the customer’s own infrastructure rather than the cloud. Needless to say, it has seen slower percentage growth recently. In fiscal Q4, growth rebounded significantly, although that is more likely a factor of some specific customers rather than part of some new, high growth on-premise trend for Mongo deployments. I do not expect the growth for Enterprise Advanced to remain at nearly 30%, nor is that necessary in order to believe that the company will achieve a 3-year CAGR of greater than 40%.
At this point, I imagine, there are going to be those readers who think that recommending a high-multiple IT name such as Mongo after a considerable run is crazy, especially after the “great re-rating.” I am, to be sure, well aware of the risks in acquiring Mongo shares at this point, and so, for that matter is everyone else. What I think might not be as well known, even at this point, are Mongo’s opportunities, and the latest developments in the NoSQL data base market. I initially recommended Mongo some years ago; the Seeking Alpha records peg my price at the time of that recommendation at $26. Of course, I haven’t held it through all of the time from then till now, and don’t hold it presently. I sold the shares a couple of years ago for many of the same reasons analysts and investors are possibly concerned these days; valuation and concerns about a growth slowdown. It didn’t turn out to be my best portfolio decision.
My advice to readers is to initiate positions in the shares, but not to establish a full size position. Regardless of the rally in high-growth IT names, the market hasn’t returned to the conditions that prevailed before last November. Indeed, the market is still focused on concerns regarding inflation, interest rates, and the geopolitical risks. This has brought the correlation between growth and valuation to a far lower level than obtained before last November. Scaling into a position in the shares of Mongo, after their recent spike from the sloughs of despondency, seems more prudent than jumping aboard based on fears of missing the train. But I believe that Mongo shares will show meaningful positive alpha over the next year as the company’s growth and profitability noticeably exceed the current consensus forecast.
Mongo shares are very volatile, with daily moves of 5%+ not uncommon even in the absence of any particular news. Mongo shares are not for the faint of heart, or for investors who abhor volatility. The volatility has to be taken into account for those readers interested in acquiring a position. The volatility makes it important to scale into a position, rather than attempting to call a bottom.
I don’t want to suggest that Mongo shares are either “cheap” or that the shares are likely to be able to appreciate when all other high growth IT names are out of favor. By my estimate for forward revenues, the current EV/S is a bit less than 22X. That is a noticeable premium to many other high-growth names, although because Mongo has just become positive from the point of view of its free cash flow margin, the valuation premium is not really particularly substantial. Its NPV is still above its current share price using my estimates for future growth and margins.
Perhaps of equal significance to the published results and guidance was the announcement on 3/15 that Mongo has become Amazon’s partner rather than its competitor in the NoSQL space. It is hard to overestimate the likely significance of that partnership. Amazon and Mongo had been existential rivals. It is just more than three years since Amazon attempted to become a major competitor of of Mongo, when the folks from Seattle launched a competing cloud-based service, DocumentDB.
Now, Amazon will “essentially treat the MongoDB Atlas cloud database an equal to AWS products.” While analogies are never exact, in some ways this would be equivalent to General Motors announcing that its dealers would be carrying Toyota cars and they would be sold on the same basis as other GM offerings. Even more telling, I believe, is that the announcement speaks to capabilities that users want from their database but are only available on Mongo. Mongo has a similar partnership in place with GCP.
There are going to be readers and analysts who will say that Mongo shares should never have reached $590 and that their valuation is still extended. The issue, of course, is whether the growth seen the last two quarters marks a turn toward sustainable growth reacceleration. I think I should mention at the outset, as I often do in writing articles such as this, that taking company guidance as some kind of existential truth is simply not validated by empirical evidence. Mongo DB started off the prior fiscal year forecasting that it would grow its revenues to $755 million, or by 28%. That probably was not really considered as a terribly likely outcome at the time, but it certainly led to analyst valuation constructs and recommendations that were based on an alternative reality.
The actual growth for last fiscal year came to 48% – the revenues actually beat the initial annual forecast by almost 16%. Because revenue growth was so strong, the company achieved break-even free cash flow far sooner than had been anticipated. While the company doesn’t forecast that metric, the free cash flow improvement of about $60 million year on year illustrates the strong unit economics of this business.
On a sequential basis, Mongo revenues rose by 17.5% last quarter. Just to put that in some context, in the prior fiscal year, sequential growth in the same quarter was 13%. The company had forecast that its revenues for the quarter would grow to about $240 million, which would have been growth of 40%. Instead, the company actually reported quarterly revenues of $266 mil., or growth of 56%.
Of particular interest in terms of looking at expectations going forward is that Atlas revenues, which grew by 85% last quarter, are now 58% of total revenues compared to 49% in the year-earlier period. I should point out that Atlas revenues are consumption based, and as the product is a database, which is always “on,” high levels of Atlas growth are not quite the outliers they may seems to some. Atlas, which historically has been a data base format used by developers, is now being used as the basis for commercial workloads as well. These workloads have been increasing revenues for Atlas at rates significantly above those anticipated by the company. There is every reason to believe that this is a trend likely to continue, and it is a primary reason for anticipating that the growth reacceleration that Mongo has achieved is likely to continue.
Although a couple of companies such as Snowflake (SNOW) and Confluent (CFLT) reported consumption growth “pauses” around the holidays, that was certainly not the case for consumption at Atlas. This was the 3rd quarter in a row that saw Atlas revenues grow by more than 80%, a marked acceleration from the recent past. It would not be prudent to forecast that Atlas revenue growth will continue to reach 80% or higher. However, given consumption trends, I think Atlas growth is likely to be at a level that will help the company to significantly exceed its current forecasted revenues.
The company is forecasting that its revenues will grow by 34% this year, and at that level its outlook for non-GAAP losses is about $15 million. This would be a modest improvement from the non-GAAP losses for the just past fiscal year. But as was the case with the company’s revenue forecast, the non-GAAP earnings performance, which had been forecast to be a loss of about $80 million at the start of the prior fiscal year, wound up being a loss of about $38 million. The evidence is that, at least with regards to the last 4 quarters, Mongo’s guide has substantially underestimated its actual performance, and that was most in evidence last quarter.
At the end of the day, the combination of the announcement of the AWS partnership as well as the strength of the company’s quarterly performance is why the shares rebounded from their trough of about $280 reached just before the earnings release on 3/9 to the current level, 55% greater. Needless to say, that increase is far greater than the rebound of the WCLD ETF, which has risen just a bit over 10% in the same span.
With regards to the short-term, Mongo guided for essentially no sequential increase in revenues this quarter, which would put year-on-year growth at about 55%. A year ago, sequential growth was about 6% between Q4 and Q1. The basis of this current forecast, according to the CFO, is that Q1 has fewer days (presumably workdays) than Q4, which would constrain consumption, although I don’t believe that there is any difference in the length of this year’s quarter compared to the same quarter in the prior fiscal year.
In addition, while in-quarter expansion of existing Atlas customers was said to be “strong,” it was “only” in line with historical trends rather than achieving the exceptional growth rate for in-quarter expansion seen in Q3. Obviously, since Atlas sales performance, albeit at 85% growth, was only in line with historical trends, the slack was taken up by Enterprise Advanced. Enterprise Advanced saw strong growth because Mongo’s largest users simply bought more. Workloads are shifting from legacy databases to NoSQL at an accelerating rate, and Mongo is the primary beneficiary of that trend.
Overall, Mongo’s new customer count last quarter grew by more than 2000, consistent with prior quarters, and basically reflecting the strong demand from developers for Atlas. It would be surprising, I think, given the announcement of the AWS partnership/joint offering of Atlas, if that figure did not show increases in the immediate future.
Basically, the question investors have to consider at this point is not what Mongo shares are worth at the current guide, but what they ought to be worth if the guide is significantly exceeded. Management said that its current guide reflected the current economic/geopolitical environment. There certainly are not any current signs of Mongo seeing a growth slowdown because of geopolitical factors or any other factors. I am not going to try to handicap the likelihood of a material economic slowdown based on the many threats that have arisen to economic growth. It is not a knowable contingency at this point, and I will examine Mongo’s likely growth cadence based on the expectation that if a recession is to come, it is probably 12 months away and is unlikely to affect either new logo demand or consumption over the next 4 quarters.
I don’t think anyone would dispute the observation that If Mongo’s growth percentage was really going to be at the 34% level, than there would be no question to answer about the current investment merits of the company. Justifying the valuation of the shares with that kind of growth percentage would take a feat of intellectual legerdemain, in which I would not choose to participate.
I really am unable to understand how it is that a company with an SaaS revenue model can underestimate its potential revenue attainment by such a considerable amount even half-way through a quarter-after all it made its forecast for the January ending quarter on December 6th, 2021. The company does have a revenue model partially based on consumption, but again, I am not sure if consumption patterns changed all that much in the last several weeks of the quarter. The company saw a noticeable reacceleration for its Enterprise Advanced offering. The EA offering, while based on subscription revenues, can see revenue spikes based on the use of ASC 606. I think the strong performance of EA last quarter was both unexpected and one of the causes of the rather significant upside the company achieved. Apparently, Mongo has no real ability to forecast any upside growth potential for EA, and this has been causing the company to under-estimate revenue growth consistently.
Trying to put together a forecast for Mongo, as opposed to copying guidance, is not a simple task. But it is a necessary one in order to account for the company’s lack of forecast accuracy. I try to evaluate what is visible with regards to the tailwinds in the demand outlook, and try to measure those against guidance which implies a massive growth deceleration, even in the context of the exceptional qualitative commentary made by the senior managers on this latest conference call. I have forecast revenue for the next 4 quarters will be a bit greater than $1.3 billion which compares to the $1.18 billion the company forecast for the period. My forecast would represent growth of 49%-compared to the 34% growth embodied in company guidance, but it still reflects a material slowdown from growth achieved this past quarter and is roughly consistent with the overall percentage growth achieved in the company’s last fiscal year.
What are the drivers in Mongo’s growth reacceleration
As the saying goes, success has many fathers, and in this case, the growth spurt at Mongo is composed of many different causes. The basic component of the investment story is Mongo’s leadership in the NoSQL database market. That market itself is large and is projected by market researchers to achieve a CAGR in the low 30% range over the next five years. Whether the market will be $25 billion, as this linked study shows, or some number higher as the company CEO has maintained, the fact is that NoSQL continues to displace, or augment, applications built on legacy databases. Mongo is, has been, and is likely to remain the leading independent vendor in the space, which means that I expect it will enjoy market shares gains for the foreseeable future.
I have written about a variety of companies whose offerings are designed to help developers. One might consider GitLab (GTLB), or JFrog (FROG), Twilio (TWLO) or even Marqeta (MQ) as tools designed to make it easier, faster and more secure for enterprises to develop applications. While perhaps not often thought of in the same light, one of the principal reasons that NoSQL is growing is that application development can be significantly sped up and encounter fewer pain points using this kind of paradigm than had been the case when trying to develop applications on the basis of RDBMS. According to Mongo’s CEO, the approach of the hyper-scalers has been to introduce many proprietary point solutions which can make application development more complex because of the need to develop workarounds.
Mongo’s application data platform is “built on a model that is aligned to the way developers think and code” according to the company’s CEO. The company’s CEO, Dev Ittycheria, is somewhat of a serial entrepreneur. He founded a business called Blade Logic that was bought by BMC Software in 2012, and that is where I learned about him. Blade Logic was an exceptionally “hot” company at that time, with advanced technology that was a key strategic component of BMC in order to remain competitive in the market. Based on his record, I tend to give credence to Mr. Ittycheria’s comments about how developers think and code, as that is his background The company claims that its approach avoids working around the constraints of complex data infrastructure. And like any good vendor in this modern age, Mongo’s management maintains that its performance and scale is unrivalled.
How much all of the above is a commercial and hype, and how much of it is real, is difficult for an outside observer to effectively judge. That some of the commercial is likely to be true is borne out by the extremely strong increase in the growth of the largest customer cohort. Presumably large customers are increasing their commitment to the Mongo solution, because it has been achieving the performance in terms of scale, cost, and ease of use that it has advertised.
Mongo now has 164 customers with ARR’s of greater than $1 million, up 70% from the prior year. While databases can be best thought of as a key component of modern data transformation applications, in some cases they are bought based on their just how popular they are amongst peer users. In particular, MDB is benefiting from a particular trend to build applications using what is called a microservices architecture. Developers are being called upon by enterprises of all kinds to modernize applications so that they perform well enough to be used in the types of applications described as digital transformations. Mongo’s technology fits neatly into that paradigm.
As mentioned earlier, MongoDB and AWS recently struck a partnership arrangement. For AWS, the incentives were two-fold. One incentive is that with the partnership, there are now tens of thousands of Mongo users who can readily migrate to Amazon infrastructure while maintaining the ease of use features that are components of the Atlas offering
“Our joint customers love MongoDB because it’s flexible and easy to use and leverages a JSON-like format, which is popular with AWS users,” according to an AWS executive. Given what AWS has advertised with regards to DocumentDB, the Mongo implementation must have substantial advantages below the headline level.
The other incentive that Amazon had to negotiate a partnership agreement with a rival was its goal of retaining customers, even if they use an Atlas database, rather than see the customer choose another hyper-scaler for its infrastructure. For Amazon, it is about its flywheel, which is more of a priority than it is about selling additional usage of DocumentDB. It is an intelligent choice for AWS, and it is very likely to be one factor that is likely to lead to a continuation of Mongo’s elevated growth.
Initially, AWS and Mongo were bitter rivals. Over the years, even before this partnership announcement, that had begun to change, and Mongo has already been selling a significant level of deals based on AWS infrastructure coupled with the Atlas database. Presumably this partnership is likely to ramp the revenues that AWS and Mongo achieve selling to joint customers. Just how much incremental revenue will be achieved this year and beyond with the partnership is not readily determinable at this point. It is, however, one factor that is likely to create an upside bias in MongoDB revenue and profit growth.
Mongo’s Competitors
Given the size of the NoSQL opportunity, and user preferences, it is not terribly surprising that there are numerous competitors in the space. Unstructured data and semi-structured data are showing enormous growth, and they simply don’t fit into a relational database model. The most prominent of competitive offerings come from the hyper-scalers including AWS, Google GCP (GOOG), Microsoft Azure (MSFT, Oracle (ORCL) and IBM (IBM). As mentioned, AWS essentially is now essentially endorsing Mongo as its preferred solution in the space, despite having competed for years. I have linked to several comparisons of Mongo with different hyperscalers. This one is a comparison with Google.
But even though GCP and Mongo can compete, and sometimes do, they actually spend more time as partners. Customer deployments that include both GCP and Atlas cohabitating are a significant part of Mongo’s success.
I have also linked here to a comparison with Microsoft Azure. But as is the case with AWS and GCP, Mongo is more of a partner than a competitor. Here is a comparison between Oracle NoSQL and Mongo. I have even linked to a comparison between Snowflake and Mongo, although, of course, while they are both database products, there really isn’t any substantial overlap between the two offerings.
It is relatively apparent that in many of the key features, Mongo simply ranks significantly higher. In particular, that JSON format referred to in the quote above is a major differentiator according to almost all reviewers. Developers, it seems, really do find that Mongo has significant advantages compared to the offerings from hyper scalers. And the latest product enhancements from Mongo, which are not really encapsulated in these 3rd party reviews, suggest that Mongo’s competitive differentiation and its apparent superior results compared to competitors continues to show positive trends.
The NoSQL space has become an important part of the overall IT stack. While Mongo’s valuation and its partnership with AWS may preclude it getting acquired, its position in the market space presents significant issues for the hyper-scalers. Whether or not those are worth paying something like the $50 billion it would probably take to buy this company is not something I would like to handicap. But just using traditional valuation methodologies really doesn’t work well in trying to forecast the potential course of Mongo’s share price performance given the company’s obvious competitive advantages. If investors want to invest in the NoSQL space, then it should be obvious that the only logical choice would be Mongo.
Why is the database market moving to a NoSQL paradigm?
The simple answer is that NoSQL has become popular because it yields far better performance for applications that need to review large amounts of data-particularly unstructured data. Many readers will have heard about “Big Data.” If a business wants to process massive amounts of data, or develop a query that uses massive amounts of data, then the odds are these days that they will consider a NoSQL database. There are many specific reasons why developers want to build their applications using a NoSQL technology. Key advantages include scalability, cost, NoSQL’s ability to store unstructured and semi structured data. With NoSQL, there are no complex relationships between rows and columns that have to be considered in developing an application.
I have linked here to what I believe is an insightful article which talks about market trends in the database market. Like many of these articles, it is written by a source that has some skin in the game – in this case, the author works for an organization that wants to promote the courses it offers. Needless to say, these courses are meant to instruct their students in big data and the use of NoSQL. But that doesn’t take away from the insights. The article indicates that NoSQL will continue to enjoy increasing acceptance as the database technology of choice for developing applications, and deploying them.
The advantages of NoSQL are so significant and obvious that a pattern of rising use of the technology is probably irreversible at this point. Over time, according to this article, all of the legacy database offerings including Oracle and MySQL (MySQL itself is open source, but it is also offered via a proprietary license from Oracle) are at risk and will not be used as platforms for creating modern software applications. The article does point out that there are some relatively minor limitations to the rapid growth of NoSQL, and it also points out that it is not typical to see the use of a NoSQL database as a paradigm to unseat applications that are currently in production and which are using traditional relational data base management systems. The evidence portrayed in this article shows that job growth openings are accelerating for developers who have capabilities in the NoSQL space, while the number of new jobs for developers in traditional RDBMS is at best stagnating, or even starting to decline.
Cheaper, faster, easier to use – it seems perfectly logical that application developers will focus on NoSQL and that the wave will more likely than not accelerate as the skill set of application development evolves toward NoSQL
MongoDB – When will the company start to consistently generate free cashflow?
While I freely admit to being a growth junkie when it comes to stock selection-I also consistently focus on free cash flow margins. While not every analyst is fixated on that metric, trying to get a handle on the growth of free cashflow is a cornerstone of calculating the Net Present Value of any stock. The problem is that trying to estimate the free cash flow margins is not simple, and requires making estimates on many factors whose outcomes are extremely elusive to forecast.
Last year, as mentioned earlier, for the first time, Mongo reported a modest level of operating cash flow over a 12 month span, and essentially broke even in terms of free cash flow margins. Looked at it on a yearly basis, operating cash flow margins improved by $52 million, or about 6% of last year’s revenues. Part of that improvement was the very strong growth in the company’s deferred revenue metric. The increase in deferred revenues actually rose by almost 3X year over year, and represented 170% of the overall increase in the change of free cash flow.
It appears that a principle reason for the increase in deferred revenues was the exceptionally strong performance the company achieved in its Enterprise Advance segment last quarter, and an additional component of the yearly increase in cash flow was the early renewal of some larger Atlas contracts that was seen in the company’s fiscal Q3. While I don’t expect that the company will be able to generate cash in its first fiscal quarter of its fiscal year 2023, I do think it will still be able to generate a modest free cash flow margin for the full year.
The company’s gross margin rose a couple of hundred basis points year on year, and rose a similar 200 bps sequentially. Some of the improvement in gross margin was a function of the strong performance of Enterprise Advanced in the quarter; historically, Atlas has seen somewhat lower gross margins than Advanced, but that may be less of a factor going forward. That is really a function of rising consumption of Atlas; that additional consumption revenue is almost all margin, so the deployment of Atlas in commercial use cases is having a noticeable impact on gross margins. Essentially, the CFO suggested that gross margins, after declining over the time when Atlas growth was elevated, could now be expected to resume an upward trajectory.
Mongo has typically spent aggressively on opex, and there is no reason to expect that will not continue to be the case. Last quarter, the largest expense category was sales and marketing with a non-GAAP expense ratio of just less than 44% compared to 48% in the year earlier quarter. Overall, non-GAAP sales and marketing expense rose by 43% year on year. Sequentially, sales and marketing expense actually rose by more than 22%. That kind of sequential growth suggests me both that many sales reps were getting commission accelerators due to the strong performance of Mongo’s direct sales component, and that there was likely some relaxation of travel limitations that had been in place during the worst periods of the pandemic.
Mongo spent 22% of its Q4 revenues of research and development compared to 24% of revenues in the year earlier period. Research and development expenses grew by 38% year over year. The sequential increase in research and development expense, which probably saw less of an impact due to the end of Covid travel restrictions, was less than 10%. That might also be a function of strong growth in research and development expenses earlier in the year.
The company is seeing some leverage on the general and administrative line where that expense ratio was less than 10% last quarter compared to 11.6% in the year earlier period. General and administrative costs rose by about 12% sequentially, partially reflecting some Q4 seasonality.
The company is projecting a jump of about $50 million in opex next year due to the end of Covid travel restrictions, and is expecting overall opex to increase by $285 million, or by 43% (36% excluding the snap-back of travel expense). Over the past years, Mongo has typically underspent its opex projection, and I imagine that will continue to be the case in the current fiscal year.
Sometimes, it can be difficult to square conference call commentary with specific projections. For example, the CFO said that “we have more confidence operating in the current environment than in either the last two years.” I am not sure how that squares with a projection for 34% revenue growth after a year in which revenue growth was 48%…but I doubt that many investors are considering 34% revenue growth as a real forecast.
The company has minimal exposure to Russia in terms of revenue or as a development venue, and at the time of the call on 3/9, it had not experienced any business hiccups or slowdowns because of geopolitical factors, according to the CFO.
Overall, the company forecast a non-GAAP loss of $15 million this year, compared to a non-GAAP loss of $38 million in the prior fiscal year. Progress, but not huge progress. I expect that revenue growth will be quite a bit greater and perhaps the growth in opex will be a bit less than are embodied in the guide. From the inference I drew from the CFO’s specific comment during the conference call, I would be surprised if free cash flow were not positive again this year. I expect the progress of free cash flow improvement to be noticeable, but gradual, over the next two or three years. Of course, that constrains the NPV of the shares, even though the NPV is still greater than the current share price.
Mongo’s valuation and my investment thesis
Mongo is by no means the “cheapest” name amongst the IT companies that I follow on the basis of EV/S related to growth. While it is not quite as expensive on that basis as some other companies in the space such as Cloudflare (NET), Bill.Com (BILL), or Snowflake (SNOW), it is certainly not valued below average for what I assume to be a growth cohort of greater than 40%. While I try to make estimates based on market growth, and market share to inform a 3 year CAGR forecast, there is obviously guess work involved.
While in this article I have tended to suggest that NoSQL is a single offering, obviously Mongo is spending substantially to enhance the company’s product footprint and to develop additional functionality as it creates new versions of its solutions every few months. The company has invested resources to help the company’s largest customers accelerate the adoption of Mongo. That use of resources has apparently seen positive results, particularly last quarter, when the growth of Advanced Enterprise rose toward 30%.
Overall, the rate of growth for NoSQL appears to be accelerating, and it is rapidly supplanting RDBMS as the standard data base used for new application development and deployment. It seems likely that the current estimate for the growth potential of NoSQL of 31% is a base, and NoSQL workloads are becoming more and more mainstream, probably more rapidly than anticipated even in the most recent surveys.
Mongo shares, like many of its high growth IT peers, has seen a massive rally since the low they made just before the release of earnings. Overall, since 3/9, the shares have appreciated by a little bit more than 55%. That kind of bounce may be a turn-off for some readers in terms of initiating a position, and it is always possible that the shares will retrace, or at the least take a breather after that kind of rapid appreciation. On the other hand, the shares are still about 25% below the high of $590 that they reached back in November 2021. Of course, the company has reported stellar earnings and made a highly significant partnership announcement since that time. While it hasn’t been particularly cited in any research I have seen, I believe that the partnership announcement with AWS has been responsible for some of the recent share price appreciation.
My investment thesis for Mongo is based on three pillars: it is the leading participant in a hot space whose adoption is accelerating; it is making market share gains, especially in the wake of the company’s formal partnership with AWS; and it is achieving rising gross margins. Additionally, I expect some margin gains based on scale and the continuation of above planned revenue gains. While these positive factors are hardly unknown, and some will opine are already baked into the share price, I believe that not all investors and analysts have accepted the likelihood that the current 1st Call consensus forecast can be significantly exceeded.
I typically try to take at least a one-year perspective in making portfolio choices and setting recommendations. Given the recent share price spike, and continued uncertainties about the geopolitical environment, I intend to be prudent in reestablishing a position in the shares, initiating part of a position now, and being prepared to continue buying if the shares retreat more from their recent high. I am only too aware that Mongo shares are susceptible to any risk-off market pullback. While I hope that the apogee of risk-off trading has been seen, I am sure with all of the uncertainties in the world. There will still be bouts of broad risk-off based selling from time to time.
Just how large the NoSQL market will reach is not readily knowable at this point. Will it reach $70 billion as the Mongo CEO has suggested, or is the current market research estimate of $25 billion more appropriate. Regardless of what will turn out to be the more accurate prediction, given that my estimate for Mongo’s current fiscal year revenues is just over $1.3 billion, its growth runway is huge. I believe the shares are likely to achieve significant positive alpha over this year, and the coming years.
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