The technology sector has remained largely unaffected by the COVID crisis so far, thanks to the high demand for IT services triggered by the widespread implementation of digital transformation. MongoDB, Inc. (NASDAQ: MDB) entered the second half of the fiscal year on a high note by cashing in on its innovative product portfolio and effective marketing strategy.
The New York-based database software company added around 1,800 customers during the second quarter, raising the client base to 20,200. It has achieved record customer growth for the third quarter in a row, in line with the management’s goal of accelerating growth — for which it had tweaked the go-to-market strategy earlier this year. The key to maintaining the momentum and becoming profitable is to retain subscriptions, which is the main revenue source.
MongoDB would have been a highly attractive stock if the company generated profit and paid dividends. Currently trading at $230, the stock looks overvalued. While it is advisable to adopt a wait-and-watch strategy, investors who are prepared to take risks will definitely go for the stock, which is expected to make decent gains in the coming weeks. The company is unlikely to pay dividends in the near future, while the elusive profit might weigh on investor sentiment going forward.
In recent quarters, MongoDB’s bottom-line performance was much better compared to the consensus estimate. That, combined with the company’s strong balance sheet, has added to the turnaround hopes. The advantages of the document model and the company’s growing prowess in managing the self-serve business — which was well received by customers — will likely translate into better margins in the future.
The portfolio has undergone revision regularly in the past and the management is all set for some major launches, after the successful rollout of MongoDB Atlas. The growth initiatives and global expansion plan should benefit from the solid cash flow that has helped the company reduce its debt.
It is estimated that the demand for database products specifically designed for cloud would remain high since more and more enterprises are shifting their IT workload to cloud platforms. MongoDB is uniquely positioned to tap the opportunity, supported by its document-based architecture and combination of relational and non-relational databases.
Highlighting MongoDB’s advantageous position in the market, CEO Dev Ittycheria in his opening remarks at the conference call said, “Every business is quickly becoming a software business, which means the value proposition of any business is increasingly enabled, delivered or defined by software. Consequently, a key unit of productivity of a business becomes developer as developers create enhanced applications that lead to a competitive advantage.”
The market for data-management software is expected to hit $71 billion this year, and it will create significant demand for more sophisticated products rather than depending on legacy database software providers who currently dominate the market.
The company reported a loss of $0.22 per share for the July quarter, on an adjusted basis, continuing the losing streak that started a few years ago. The benefit of a 39% growth in revenues to $138 million was more than offset by a spike in operating costs. Atlas continued to be the main growth driver, representing nearly half of the total revenues. The overall outcome was better than the consensus estimate and marked an improvement from the preceding quarter.
Ups Full-year Outlook
Encouraged by the positive results, the management raised its full-year outlook. But it cautioned that the pandemic would impact new business in the second half, with the unfavorable macro environment offsetting the benefits of high customer engagement. The weak outlook can be linked to the slower-than-historic growth from Atlas customers.
Our recent product announcements enable customers to use MongoDB for a broad set of use cases and represent a significant step forward on our journey to deliver the pre-eminent modern data platform for the developer. Our second — our strong second-quarter results reflect the fact that our go-to-market organization executed exceptionally well under challenging circumstances.Dev Ittycheria, president and chief executive officer of MongoDB
Despite the impressive second-quarter outcome, MongoDB’s stock continued to lose since the announcement and pared a part of the pre-earnings gains. It had hit a record high earlier this week. After closing the last session at $239.53, the shares traded lower during Thursday’s regular session.
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