MongoDB Hits Palantir Level as New Strategy Pays Dividends
This firm looks investable after an outstanding earnings report.
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New York City based "big data" platform services platform provider MongoDB MDB released the firm's fiscal second quarter earnings on Wednesday morning.
The firm provides several different database-as-a-service (DBaas) platforms for different sized customers with different needs. However, the firm has allowed that it has been pursuing contracted deals with larger clients while pulling back on services for small- to mid-sized customers. In the words of CEO Dev Ittcheria, this strategy has been "really paying dividends."
For the three-month period ended July 31, MongoDB posted an adjusted EPS of $1.00 (GAAP EPS: -$0.58) on revenue of $591.402 million. The top-line print beat Wall Street as annual growth accelerated to 23.7%. This was the fastest quarterly pace of year-over-year sales growth for this firm for any single quarter since the one ended January 2024. Both the adjusted and GAAP EPS prints absolutely crushed expectations. The large difference in the reported and adjusted earnings was largely due to a stock-based compensation related expense.
The CEO
Ittcheria commented in the press release:
"MongoDB delivered strong second quarter results across the board, highlighted by Atlas (one of the firm's platforms) revenue growth accelerating to 29% and adding over 5,000 customers year-to-date, the highest ever in the first half of the year. We also delivered meaningful margin outperformance as we executed on our plan to drive profitable growth. Reflecting this strength, we are raising our guidance on the top and bottom line for the rest of the year."
Ittcheria added, "Many of our recently added customers are building AI applications, underscoring how our value proposition is resonating in the AI era and why MongoDB is emerging as a key component of the AI infrastructure stack."
Operations
As the firm was growing revenues 23.7% to $591.402 million, the cost of that revenue grew 33.7% to $171.42 million. That left a gross profit of $419.974 million (+20%) as gross margin dropped to 71% from 73%. Total GAAP operating expenses grew 15.2% to $485.268 million. This left a GAAP operating income/loss of -$65.294 million, up from the year ago comp of -$71.44 million. Once adjusted, operating income becomes $86.816 million, up from $52.517 million.
After accounting for interest, other income and expenses and taxes, GAAP net income/loss landed at -$47.048M, up from -$54.529M. That works out to a GAAP -$0.58 per fully diluted share, up from -$0.74. Adjusted, net income becomes $87.192 million (+47.7%). That works out to $1.00 per fully diluted share, up from the year-ago comparison of $0.70.
Guidance
For the current quarter, MongoDB sees revenue generation of $587 million to $592 million. That brings the low end of the range above the $582 million that Wall Street was looking for. Adjusted operating income is projected at $66 million to $70 million and adjusted EPS is seen at $0.76 to $0.79. That also pulls the low end of the range above the $0.79 that Wall Street had in mind.
For the full fiscal year, the firm is predicting revenue of $2.34 billion to $2.36 billion, which is well above the consensus view for $2.29 billion. Adjusted operating income is seen at $321 million to $331 million, while adjusted EPS is projected at $3.64 to $3.73. That's a country mile above the $3.10 that Wall Street was hoping for. This guidance is the primary reason why the stock is up so much on Wednesday morning.
Fundamentals
For the period reported, MongoDB generated operating cash flow of $72.105 million (up from -$1.398 million). Out of that came capex spending of just $537,000 (yes, that's in the thousands) and principal payments of finance leases of $1.691 million. That left free cash flow of $68.877 million, up from the year ago comp of -$3.995 million. The company does not pay shareholders a cash dividend, but did repurchase $194.446 million worth of common stock. That looks like cash flow mismanagement if one does not dig a little bit. The firm has a huge cash position.
Glancing at the balance sheet, MongoDB has a cash position of $2.345 billion and current assets of $2.905 billion. Current liabilities add up to $509.833 million. That includes no shorter-term debt, but it does include deferred revenues (which are not true financial obligations) of $275.877 million. That puts their firm's headline current ratio at a muscular 5.69. Once adjusted for those deferred revenues, this ratio rises to a herculean 12.41.
Total assets amount to $3.542 billion of which just 6.5% is labeled as either goodwill or as other intangibles. That's almost nothing. Total liabilities less equity comes to just $599.087 million. Again, there is no debt of any kind on the books, though there is some more deferred revenues not labeled as current. This is a Palantir PLTR level balance sheet (which is the highest compliment I can give a balance sheet) in terms of quality. You just do not see this kind of a corporate fortress every day.
My Thoughts
This is very impressive. Corporate execution is excellent. Cash flows are improving rapidly. The balance sheet is about as good as a balance sheet can get for a company this size. The question now becomes two fold.
Do investors chase? I never do that.
Is the stock expensive at 68-times forward looking earnings? The answer to the second question is "of course." We also know that this does not matter like it used to, especially when growth is involved and growth here is accelerating.
Readers will see that MDB has on Wednesday morning broken out of a bullish cup-with-handle pattern bearing a $251 pivot. In doing so, the stock filled a gap created back in early March and created a new gap that would need to see the stock drop as low as $221 to fill. Relative strength has surged on Wednesday as have all three components of the daily MACD.
I do think MDB is worthy of investment. I also think that the stock will, at some point, if not fill the newly-created gap, at least test the pivot from above or maybe even the 200-day SMA at $229. This stock is volatile. It traded as high as $370 late last year, as high as $298 early this year and as low as $141 this spring. This is one stock where patiently waiting for one's price is often a strategy ultimately rewarded.
In short, I would rather short a few shares (not many) up here (sticking to my 8% rule) than get long on this run. However, I'll get real interested in buying the shares down around $250. For those interested, $250 puts expiring in December are currently paying about $16.50. That might just be worth the risk.
At the time of publication, Guilfoyle was long PLTR equity.
