Why I'm Buying Palantir After Confounding Wall Street Reaction to MongoDB
The software services firm might not be a buy-the-dip candidate after lower expectations from Wall Street, but PLTR could be.
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Database software services provider MongoDB MDB went to the tape on Wednesday with the firm's fiscal fourth quarter financial results. The results weren't bad. The guidance, especially the full-year guidance, was.
The firm's Atlas platform outperformed expectations. However, during the call, CEO Dev Ittycheria said, "We expect our non-Atlas business will represent a meaningful headwind to our growth in fiscal '26 because we expect fewer multi-year deals and because we see that historically non-Atlas customers are deploying more of the incremental workloads on Atlas."
It appears that Ittycheria is speaking to a sort of cannibalization of the firm's other offerings by its premiere service. Interim CFO Serge Tanjga went into it in a little more detail:
"We expect our non-Atlas subscription revenue will be down in the high-single digits for the year. The primary reason is that we expect an approximately $50 million headwind from multi-year license revenue in fiscal year '26, an estimate that is based on a bottoms-up analysis of our non-Atlas renewal base."
Tanjga went on:
"Simply put, after two years of very strong multi-year performance, we expect the mix of multi-year non-Atlas revenue to not only be lower than the last two years, but also below the historical trends. This is due to the fact that in fiscal year '26, we have a more limited set of large non-Atlas accounts that can sign multi-year deals."
MongoDB Operations
For the quarter ended January 31, 2024, MongoDB posted an adjusted EPS of $1.28 (GAAP EPS: $0.19) on revenue of $548.398 million. Both the adjusted earnings print and the top-line number beat Wall Street. That sales print reflected year-over-year growth of 19.7%, a slight deceleration from the 22% year-over-year growth for the firm's third quarter and the second slowest pace of growth in the firm's semi-recent history.
The cost of those revenues grew 30% to $149.015 million. This left a gross profit of $399.383 million (+16.3%) as gross margin dropped from 75% to 72.8%. Operating expenses increased slightly to $417.945 million, leaving a GAAP operating income/loss of -$18.562 million, up from the year-ago comparison of -$70.966 million. Adjusted, operating income printed at $112.482 million (+62.6%) as the firm's adjusted operating margin improved from 15% to 21%.
After accounting for interest, other income and expenses and taxes, GAAP net income landed at $15.826 million, up from -$55.46 million, as the firm's GAAP EPS improved from -$0.77 to $0.19 per fully-diluted share. Once adjusted, net income landed at $108.361 million (+52.4%). This worked out to the adjusted EPS print of $1.28 versus $0.86 a year back. Adjustments were made for $1.55 per share worth of stock-based compensation offset by $0.46 per share worth of the "effects and adjustments related to income tax."
I've said it a million times, stock-based compensation is a business decision and should simply be recorded as an ordinary operating expense. Yes, some stocks that I am invested in do this, too. Enough with the bologna.
MongoDB Stock Fundamentals
For the quarter, MongoDB generated operating cash flow of $50.538 million. Out of this number came capex spending of $25.979 million and principal payments on leases of $1.645 million. This left free cash flow of $22.914 million, which was down 54.6% from the same period a year ago due to greatly increased capex spending. The firm had not returned capital to shareholders, but did authorize a new $200 million share buyback program.
Looking at the balance sheet, the firm has a beefy cash position of $2.337 billion and current assets of $2.924 billion. Current liabilities add up to $561.987 million, which includes deferred revenue (not a true financial obligation) of $334.381 million. That puts the firm's current ratio at a very muscular 5.2. Adjusted for those deferred revenues, the ratio rises to 13.12. That's just amazing.
Total assets amount to $3.43 billion including goodwill and other intangibles of just $94.276 million. That amounts to less than a hill of beans. Total liabilities less equity comes to $648.069 million. This includes a little more deferred revenue, but absolutely no long- or short-term debt. This is one of the strongest balance sheets I have ever seen.
MongoDB Stock Guidance
For the fiscal first (current) quarter, MongoDB is projecting revenue of $524 million to $529 million, which at the midpoint would be just shy of the $527.3 million that Wall Street was looking for. The firm sees its Q1 adjusted EPS at $0.63 to $0.67. This actually beat the $0.62 Wall Street consensus.
For the full year, the firm sees revenue of $2.24 billion to $2.28 billion, which is a miss. The range fell short of the $2.33 billion that investors were looking for. Now, here's the real doozy:
MongoDB is projecting a full-year adjusted EPS of $2.44 to $2.62. This is far short of the $3.38 that Wall Street had expected to see. Profitability is now expected to be adversely impacted this coming year by an approximately $50 million headwind from multi-year license revenue and from a non-GAAP tax provision of approximately 20%.
Wall Street on MongoDB
Since these earnings were released last night, I have come across 19 highly-rated (four-plus stars at TipRanks) sell-side analysts that have opined on MDB. There are 15 "buy" or buy-equivalent ratings and four "hold" or hold-equivalent ratings. Very nearly all of these analysts have revised their target prices lower, many by magnitudes of hard-to-believe size and scope. One of the "buys" and one of the "holds" did not set targets, so we are working with 17 of these.
After allowing for all of these changes, the average target price across these 17 analysts is $307.41 with a high of $430 (Tyler Radke of Citigroup) and a low of $225 (Andrew Nowinski of Wells Fargo). Once omitting those two as possible outliers, the average target across the remaining 15 analysts drops to $304.73.
Because it is interesting, the average "buy" target strands at $318.28, while the average "hold" target stands at $256.67.
My Thoughts on MongoDB Stock
MongoDB is a good company with a tremendous balance sheet. This, however, is not in my opinion, the time to try to catch a falling knife. The stock will likely be volatile and therefore, trade-able.
Readers will see that MDB is well off of its year ago high of $509. The stock hit resistance at the "half-way" back point of that sell-off in early December. In recent days, the shares have regained their 50-day and 200-day SMAs only to re-lose them. That is not encouraging. Even worse, on Thursday morning, down more than 20%, MDB is trading below established support created last summer and autumn.
If that level, which is about $213, cannot be re-taken and held, then MDB is not a "buy-the-dip" candidate. What an investor can do, though they are not direct competitors, is invest on the broader weakness in other big data/AI-focused platform software providers such Palantir Technologies PLTR and Snowflake SNOW.
I added to my long positions in these names ahead of the opening bell and may add some more depending on how Thursday's trading session evolves.
Just trying to take advantage of the pin action in MDB-adjacent type names. You all know that PLTR is my largest long position. SNOW is not a top-ten holding of mine.
At the time of publication, Guilfoyle was long PLTR, SNOW equity.
