Why MongoDB Could Be a Sleeper Stock Ready to Soar

MongoDB is one of those fascinating growth stories that goes back as far as we can see, and we went back a full 5 years.

Each and every quarter showed year-over-year revenue growth. Yet the share price sits at levels similar to those from 4 years ago.

So is MongoDB a buy or a sell?

Key Points

• MongoDB faces slowing revenue growth and new customer acquisition, with increased competitive pressure from major cloud providers, which could hurt its market share and pricing power.
• Analysts sentiment has shifted positive for the upcoming quarter with 22 analysts revising their forecasts higher.

Why Buy MongoDB?

MongoDB has undoubtedly been taking advantage of the shift to cloud computing. Atlas, MongoDB’s cloud-based platform, is experiencing strong growth, accounting for over 65% of total revenue with a 40% year-over-year increase.

The company’s multi-cloud strategy allows it to remain flexible versus any single cloud provider, a feature that differentiates MongoDB from some competitors and can attract enterprises looking for cloud-agnostic solutions.

With that said, the competitive landscape is intensifying, particularly from cloud giants like AWS, Azure, and Google Cloud, which have their own database solutions and can leverage existing relationships with clients.

Nonetheless, the revenue increases have stemmed from massive percentage increases in customers selecting MongoDB. For example, the 25% increase in customers generating over $100,000 in annual recurring revenue is a strong signal of deepening market penetration and higher customer value.

In tandem with top line improvements, gross margin enhancements and slower growth in operating expenses suggest MongoDB is moving toward greater P&L efficiencies. That makes the investment opportunity particularly compelling if MongoDB can continue on a path to profitability.

Another strong tailwind is the international opportunity. International markets, particularly in emerging regions, offer a significant growth opportunity, especially given MongoDB’s early entry and growing revenue from these areas.

Lastly, MongoDB’s enormous liquid reserves stretch to almost $2 billion suggests a strong moat to capitalize on new growth opportunities abroad.

What Are The Bears Saying?

While the growth rate has remained positive for the past 5 years, the slowing revenue growth rate is concerning and has acted as an anchor on the valuation multiple that investors are willing to pay.

Increased competition from major cloud providers like AWS, Azure, and Google Cloud undoubtedly pose a real threat to MongoDB’s market share, especially if customers prefer integrated solutions from these giants.

Further concerns stem from potentially disappointing performance in key international markets like Europe and Asia-Pacific suggests MongoDB may struggle to gain traction outside its core markets.

The Bottom Line

The slowing down in overall revenue growth and reduction in pace of customer acquisition rates are red flags that suggest MongoDB may be approaching a more mature phase of growth.

Still, MongoDB has strong growth prospects as long as it can fend off competition from the tech giants. If analysts are right, MongoDB has the potential to rise to $323 per share.

In terms of sentiment, it’s shifting positive with 22 analysts revising their estimates higher.