Can a new entrant win in a market dominated by huge incumbents? The answer is “Yes” – if and only if its product delivers so much more value than rivals’ that customers are better off switching to the upstart’s product.
That’s what Manhattan database provider. MongoDBMDB
, has done.
After soaring some 11,800% since its October 2017 IPO, demand from customers investing in generative AI could help fuel a continued rise in MongoDB’s stock.
MongoDB’s Rapid Growth Spurred By Compelling Product In Huge Market
MongoDB beat expectations and raised guidance in its most recent quarter. With its small market share in a large, growing market, the database company is benefiting from a product that customers find more compelling than rivals’.
MongoDB Beats and Raises In Q1 2024
In early June, MongoDB reported growth for the quarter ending April 30 after a disappointing result in the previous quarter. In Q1 2024, revenue increased 29% from the prior quarter to $386 million — $21 million above analyst expectations — while MongoDB added 2,300 net new customers — the most new adds in two years, according to Investors Business Daily.
MongoDB also raised its 2024 outlook for revenue — forecasting 15% top-line growth — and operating income.
In June, the database provider said in fiscal 2024 it “expects more than $1.5 billion in revenue [analysts expected $1.51 billion] and in excess of $110 million in operating income,” noted IBD. In the previous quarter, IBD cited a macroeconomic slowdown and weaker customer demand for its lower outlook.
MongoDB’s Competitive Position
MongoDB offers a product that appeals to customers more than competing products.
MongoDB’s product is easier for customers to tailor to their multicloud computing environments. Its program helps developers “build and design applications in a fast, flexible and scalable manner and enables them to integrate powerful AI features,” noted IBD. Moreover, MongoDB’s platform works with three cloud services leaders — AWS, Azure, and Google Cloud.
MongoDB’s legacy rivals — MicrosoftMSFT
SQL Server, Oracle’sORCL
Database, and IBM’s DB2 –use Structured Query Language to build tabular databases. These legacy products are not as appealing to customers because these off-the-shelf products are more difficult to customize, Ivan Feinseth, director of research at Tigress Financial Partners, told IBD.
To be sure, MongoDB aims at a large market — growing at a nearly 14% compound annual rate to $136 billion by 2027, according to IDC. Yet its current share is small. Michael Gordon, MongoDB’s COO and CFOCFO
, said the company’s market share is approaching 2%.
Gordon stated MongoDB’s product is poised to gain more market share because it helps companies incorporate generative AI into their business strategies. He told IBD, “MongoDB Atlas is the ideal platform to reach that goal.”
Unlike incumbents, Atlas uses NoSQL — “a document-based data model that creates unstructured, non-relational data documents.” In a recent note to investors, Jason Ader and Sebastien Naji of William Blair wrote MonbgoDB has significant growth potential since fewer than “40% of the Fortune 500 are MongoDB customers today.”
Why MongoDB’s Value Keeps Growing
MongoDB’s success springs from a simple idea: years before the company went public its product worked better at a fraction of the price of Oracle’s MySQL. That superior customer value proposition has propelled its growth before and after its IPO.
In October 2013, then-CEO Max Schireson — who left in 2014 to make way for current CEO Dev Ittycheria — told me customers loved MongoDB’s value proposition. “We are much more flexible — we make it easier for developers to handle many different kinds of unstructured data such as emails, tweets, videos, and other social media. And we run on commodity servers,” he said.
When you take into account the full cost to a company, MongoDB offered an irresistible bargain. “We believe that the cost of the software should equal that of the hardware. We typically charge $5,000 per server per year for the software to run on a server that costs about $5,000. Our competition charges hundreds of thousands of dollars per server-year plus $50,000 a year in maintenance and their software runs on $10,000 servers,” said Schireson.
MongoDB grew considerably between 2011 — when Schireson became CEO — and May 2017 — when I last spoke with Ittycheria.
By May 2017, MongoDB’s payroll had more than doubled and its customer count had soared five-fold since 2011. “We now have over 3,000 customers and are approaching 800 employees. We are winning market share because we increase developer productivity (at $250,000 a year they are very expensive), we offer high performance at scale, our product is fault-tolerant, it runs anywhere, and it costs less,” Ittycheria told me in May 2017.
I spoke with two MongoDB customers that month. One of them, Sam Broe, Chief Product Officer, at Bond — a maker of “digital products that enable customers to send beautiful, thoughtful, handwritten correspondence from their computer or phone” — told me Bond switched in March 2016 to MongoDB after four years of using MySQL.
Four years after adopting Oracle’s product, MySQL could not handle the rapid increase in the amount of data added daily to Bond’s system — MongoDB’s did the job. As Broe noted, Bond’s “platform approach requires us to have an easily scalable, rapidly deployable, highly available storage solution. That’s why we’re sticking with MongoDB.”
MongoDB has grown considerably since going public in October 2017. As of July 2023, it had 4,527 employees, $1.3 billion in revenue, and 43,100 customers. Between its IPO and July 14, its stock price has increased from $30 a share at a 56% average annual rate to $400.
Customers still have a favorable view of MongoDB’s Atlas product. 1,190 customer reviews tracked by Gartner Peer Insights give Atlas 4.4 out of five stars.
For example, one customer wrote, “MongoDB’s architecture is designed for horizontal scalability, making it an ideal choice for applications that require high availability and performance. With MongoDB’s built-in sharing capabilities, data can be distributed across multiple servers, allowing seamless scaling as the application grows. It ensures your application can handle increased traffic and data volume without sacrificing performance or availability.”
MongoDB is still taking customers from Oracle. As Ittycheria said on a June 1 conference call with analysts, China Mobile moved a service for sharing billing information with customers from Oracle to MongoDB, “leading to an 80% performance increase and reducing the number of underlying servers from 50 to 12,” according to CNBC.
Where MongoDB Stock Goes Next
The 22 analysts offering 12-month price forecasts for MongoDB Inc have a median target of $420.50. The median estimate represents a 5.49% increase from the last price of 398.63, according to CNNBusiness.
MongoDB stock is outpacing the NASDAQNDAQ
considerably so far this year — up a whopping 109% compared to 36% for the tech-heavy index.
Analysts see the run up in MongoDB’s stock as almost fully reflecting its value.
For those considering an investment in this company, it should be a concern that its forecast of 15% 2024 revenue growth is so much slower than its 47% average revenue growth since 2021.
However, when it next reports its quarterly results, if MongoDB exceeds its modest forecast and raises guidance, I think the stock will rise further.