Should you buy MongoDB stock?

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MongoDB ripped 20% last week after the company reported a solid third quarter.

Revenues were up 47% year on year to 334 million. Gross margin increased 2 percentage points to 72% and total customers increased 26% to over 39,000.

MongoDB also provided strong guidance. Full year revenue of 1.26 billion represents a 45% compounded growth rate since 2016 which is among the best in the market right now.

Analysts were also excited by the fact revenues were up 47% but operating expenses were only up 37%.

However, MongoDB is not yet a profitable company. When you account for those operating expenses and a large amount of stock based compensation, net income over the last 12 months is negative 365 million.

Also, the stock is expensive. Accounting for cash and debt, the enterprise value works out to around 12.6 billion. That means MongoDB is valued at over 10 times revenue and almost 15 times gross profit.

To understand what MongoDB does, I recommend reading this Substack article from Technically.substack.com

But basically, MongoDB is a document database that helps organizations store and run queries on data. For example, Mediastream uses MongoDB to help stream the Fifa World cup to 30 million users. And Vodafone uses MongoDB to operate hundreds of cloud-native apps.

There’s no doubt that MongoDB is running a quality operation. Enterprise customers continue to grow and the company shows strong trends on analytic platforms like Google search. This company is better placed than many growth stocks but a 10 x sales multiple might still be too much.

If you assume MongoDB grows revenues 20% per year for the next 10 years then manages to hit a 20% ebitda margin. Ebitda in 10 years time would be roughly 1.8 billion dollars. A 20 times multiple on that figure gets the enterprise value to 36 billion and that works out to an investment return of just over 11% per year.

Considering the company’s strong growth I think MongoDB is worth a deeper investigation. But right now, I give this stock a neutral rating. Because this market continues to sell off growth stocks and 10 x revenue is quite a stretch.

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