MongoDB stock rose early Friday after the cloud-based database firm crushed Wall Street’s profit expectations and raised its financial outlook for the year as it signed more multiyear licensing agreements.
However, management’s warning that weak economic conditions and reduced customer spending would impact revenue from its Atlas service, led Guggenheim’s Howard Ma to reiterate his Sell rating on the stock.
After markets closed on Thursday,
MongoDB
(ticker: MDB) posted adjusted earnings per share for the second quarter ended July of 93 cents versus analyst consensus of 46 cents listed on FactSet. Revenue of $423.8 million was also ahead of the $393.7 million estimated and beat management’s own guidance.
Chief Financial Officer Michael Lawrence Gordon said the outperformance was driven by a more multiyear licensing deals than expected and a few large ones, most notably with Chinese multinational
Alibaba Group Holding.
Licensing revenue contains a large upfront revenue and “very high margins, and therefore, we wouldn’t expect to repeat this performance,” Gordon said.
Still, the stock was up 4.9% to $399.99 in premarket trading on Friday. The shares have climbed 94% in 2023, as of Thursday’s close.
Investors were likely impressed by the outlook for profits despite management’s caution. MongoDB raised its adjusted earnings per share expectation for the fiscal year ending in January to a range of $2.27 to $2.35 per share from $1.42 to $1.56 earlier. Analysts were expecting the company to raise it to $1.59 per share.
Guggenheim’s Ma said the report was a “masterclass in beat and raise model” for companies. Ma in his Friday note still kept his Sell rating on the stock citing management’s commentary on consumption growth, which refers to revenue coming from pay-as-you-go pricing models apart from the standard licensing.
Gordon noted that revenue for Atlas, the multi-cloud database service primarily dependent on customer consumption, would continue to be impacted by the weak economic conditions and reduced customer spending throughout fiscal 2024.
The macro slowdown risks the more than 30% revenue growth in fiscal 2025 “that we believe is priced into MDB’s current valuation,” Ma wrote. Still, he raised his target for the stock’s price to $250 from $220 earlier.
Most analysts don’t side with Ma with 21 out of the 28 analysts rating MongoDB’s stock as Buy.
Write to Karishma Vanjani at [email protected].
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