2023-03-09 09:22:13 ET
Summary
- MongoDB, Inc., a New Cloud Generation database vendor, reported its Q4 of FY1/23 yesterday after the close.
- The company beat its revenue guide by almost 8%.
- In addition, EBITDA and unlevered pretax-free cash flow margins continue to tick up - UFCF was substantially positive in the quarter.
- MongoDB is in very good shape on fundamentals, and the chart outlook is bullish.
- We see the selloff as an opportunity to accumulate a position for the long term, and indeed will be doing so in staff personal accounts today.
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Background
MongoDB, Inc. (MDB) has been a staple software stock for a while now, but only recently did we get excited about its long-range prospects. Its roots lie in low-cost, lightweight database deployments in online applications with non-mission critical data; think smaller-scale e-commerce applications. But as the company has evolved, it is gearing up to challenge the incumbent enterprise database market.
Today you won't find a slew of global enterprises entrusting MDB with high transaction volume, high security data. But that day is now a question of time in our view, not whether it will happen or not. What changed? MDB's product strategy and use cases. For the technical detail thereof, take a look at this post from Software Stack Investing. With this in mind, we recently began building a long-term position in the stock in staff personal accounts. With the selloff after hours yesterday, which we assume means MDB stock will remain soft for a while, we intend to continue doing so.
Fundamental Analysis
In an earnings season where for the most part, Big Tech has reported dreadful numbers but their stocks have risen anyway, and where New Cloud Generation names have generally reported continued high rates of revenue growth and also continued margin improvement, MDB delivered a particularly strong Q4 (ending January 2023). The company beat its own midpoint revenue guide by nearly 8%. And look at the margin progression.
Key highlights:
- 36% revenue growth in the quarter vs. Q4 of FY1/22; TTM revenue growth stands at 47% on a revenue base of around $1.3bn.
- Gross margins improving - now 73% on a TTM basis, a record high (and 75% in quarter, suggesting the TTM margins can move up).
- EBITDA margins now positive for the second quarter in succession.
- Unlevered pretax free cash flow positive in the quarter and TTM UFCF margins very nearly at breakeven (-2% now, and climbing)
- Solid balance sheet with around $700m of net cash and with the company about to turn cash generative on a sustainable basis.
- Deferred revenue at MDB is, sadly, not very meaningful, since the company continues to prefer contingent / usage-based billing. This is a mistake in our view; we believe the stock would benefit from more certainty on the revenue line.
MDB Fundamentals (Company SEC filings, YCharts.com, Cestrian Analysis)
The guide was for +27% revenue growth next quarter and this weighed on the stock at the print. It may prove cautious or not from the management team; again, the company beat their own midpoint guide this quarter by nearly 8% (a guide given one quarter ago!). So, whilst it's always dangerous to declare "well, that's too cautious, they'll beat that," you can at least point to some evidence that this could be the case.
Valuation isn't so bad for buyers in our opinion.
MDB Valuation Analysis (Company SEC Filings, YCharts.com, Cestrian Analysis)
Sub 11x TTM revenue for 47% historic growth and a clear path to positive cash flow is fine by us.
Technical Analysis
Here's how we see the stock chart. You can open a full page version for easier viewing by clicking this link .
MDB Chart (TrendSpider, Cestrian Analysis)
With recent IPO stocks, we find the not-intuitive method of starting the wave count at a notional zero to be helpful. Many such names have found support after the 2022 selloff at the .786 Fibonacci retracement of the move up from a notional zero to their all-time highs, and MDB is no exception.
We believe MDB stock warrants accumulation between around $130-210/share if one has a long term target in mind. Stocks with this kind of fundamental profile and chart setup can make new highs in relatively short order - in just a year or two - and if you consider that means 3x money from here - $200 to $600 - then a wide accumulation range can be justified with that volatility in mind. Of course if trading shorter term you will have tighter risk control, but for us this is a long term hold opportunity. We believe the transformation of the enterprise database market from the old-line Oracle, IBM and Microsoft triumvirate to the new name no-SQL crew has a long way to run yet. And we think MDB stock can benefit greatly from this.
House View
Accumulate rating for MongoDB, Inc. We intend to add to staff personal account holdings in the coming days.
Cestrian Capital Research, Inc - 9 March 2023.
For further details see:
MongoDB Smashes Its Q4 Guide, Guides Down, Stock Dumps, We Rate At Accumulate