MongoDB Update: Atlas Helps Accelerate Growth
by Beth Kindig
We discussed on the forum that we like the Elastic setup and we want to add that we also like MongoDB in terms of both fundamentals and technicals. Below, we revisit MongoDB, a company that we have owned in the past, and our coverage of Atlas, a product that we expanded on in July of 2019.
In addition to these two, we have been eyeing Confluent (CFLT) a recent IPO. We will cover this company soon yet want to caution our readers as to the likelihood of a company holding its IPO opening price after the lock-up expires. This is very rare even for quality companies. Therefore, if we enter a company prior to lock-up, we sometimes have to exit and re-enter again due to the nature of IPOs.
You can read our past analysis here on MongoDB
And my previous editorial coverage of Atlas here from 2019.
Atlas Update:
MongoDB is officially an Atlas company with 56% of revenue coming from this product. The CEO ended the call by saying that aren’t many businesses growing at 80% with a run rate of $0.5 billion. He is talking specifically about Atlas. In fact, Atlas is mentioned on the earnings call 90 times (!)
Here’s a quote from the call:
And I think you’ll see us continue to invest aggressively in Atlas, because every customer that we know, even the customers who are predominantly on-premise, they know that the benefit of using MongoDB is that they can start on-prem, but they have a very seamless path to the cloud. There’s no forklift upgrade. There’s no rewrite of the application code. It’s just a very seamless migration path. And so there’s different customers based on the regulatory environment they’re in, compliance reasons, sometimes even cultural reasons. They may be moving more slowly. But every customer has a very clear migration path to the cloud and we believe the ultimate destination will be Atlas.you’ll see us continue to invest aggressively in Atlas, because every customer that we know, even the customers who are predominantly on-premise, they know that the benefit of using MongoDB is that they can start on-prem, but they have a very seamless path to the cloud. There’s no forklift upgrade. There’s no rewrite of the application code. It’s just a very seamless migration path. And so there’s different customers based on the regulatory environment they’re in, compliance reasons, sometimes even cultural reasons. They may be moving more slowly. But every customer has a very clear migration path to the cloud and we believe the ultimate destination will be Atlas.
Atlas is the MongoDB product that allows the flexibility and scale of a document database with the automation of the cloud. The company took the well-loved NoSQL database that put MongoDB on the map and allowed companies to leverage NoSQL in the cloud and connect pipes to companies like Snowflake for structured and semi-structured data analysis. MongoDB has done well because its platform is nearly universal in terms of training and software developer experience. The fact that MongoDB is a highly requested skill across software developers is not a moat, per se, but it’s helped the company remain defensible. You’ll see here that MongoDB is the top-ranking document store with a comfortable lead in terms of score and is also in the top 5 database systems worldwide. Of the top 5, it’s the top-ranking NoSQL database.
The global NoSQL market was worth $4.9 billion in 2020 and will be worth $29.6 billion In 2026. This is equal to the SQL database market. With Atlas, developers can leverage any cloud infrastructure company and also leverage best-of-breed data analytics, when needed, such as Snowflake. Essentially, MongoDB is integrated with every major player and this has helped the company do well in a multi-cloud environment. Elastic is also a NoSQL database yet is primarily a search engine, and therefore, superior in terms of search with better tokenizers and analyzers that result in a more advanced search.
Here is why the market is excited about MongoDB as we’ve seen Atlas re-accelerate two quarters in a row.
A few things that could drive the more growth in the future is the ease-of-use features the company launched recently. The first is Atlas Serverless which allows a company to add compute and storage during traffic spikes or scale back during low usage periods. MongoDB will charge for usage and will maintain the servers for scaling compared to SQL which tends to charge on an hourly basis. This can help Atlas’ growth because it now competes with serverless databases like Google’s Firestone and expands the customer base to include those who can’t or don’t want to pay for dedicated Atlas clusters. It also allows for more integrations with serverless app platforms. As MongoDB put it in the earnings call, “We expect Serverless to drive more customer demand, because getting started on and using Atlas just became even easier.”
The release of MongoDB 5.0 in July includes Live Resharding, which simplifies the process of splitting a database into smaller pieces for horizontal scale. MongoDB now handles the data redistribution and backend synchronization of moving the data to the appropriate shards. The company also allows for time series data to sequence data in order of time. Of the 5.0 updates, the Versioned API release was the most requested change, which allows developers to update or change an API without breaking the client integration.
The 5.0 release followed the 4.0 release which improved the Atomicity, Consistency, Isolation and Durability (ACID) which is a set of properties offered in SQL databases that helps to make accurate transactions. Previously, NoSQL databases prioritized speed by complying with ACID on a single-document level. With the 4.0 release, MongoDB can compete with SQL on multi-document ACID transactions, which puts the company in a stronger position for e-commerce companies and also enterprises. This was an important release because it combined the best of both worlds, which is the speed of NoSQL with the transactional accuracy of SQL.
The main takeaway from MongoDB’s fast iterations of 4.0 and 5.0 is that more enterprises can use MongoDB because it’s bridging the gap with the benefits of SQL and serves both on-prem and cloud by allowing for a seamless transition if/when the enterprise is ready. Here’s a quote as to how Atlas has evolved since its launch:
Atlas has clearly become a mission critical platform. In the early days, there were probably people were, obviously, being a new service and people didn’t know what to expect. You saw more dev and test workloads, perhaps, peripheral or Tier 3 workloads moving on to Atlas. But as people got more and more experience with Atlas, as we added more enterprise features to Atlas, people became increasingly more comfortable and now we’re seeing, very, very large and demanding applications move to Atlas, even from some of the more conservative mainstream organizations out there. So what we’re really seeing now is enterprise adoption of Atlas at scale.as we added more enterprise features to Atlas, people became increasingly more comfortable and now we’re seeing, very, very large and demanding applications move to Atlas, even from some of the more conservative mainstream organizations out there. So what we’re really seeing now is enterprise adoption of Atlas at scale.
Notably, the recent FedRAMP approval could also be a catalyst for MongoDB as the company is able to serve local and federal governments now.
Multi-cloud is another driver, which we will expand on with in a cloud report for next week so that our members can have a more holistic view of why this trend is critical to have exposure to. On a similar note as multi-cloud, our past Atlas coverage focused on MongoDB’s ability to stave off competitors who had cloned its product, such as Amazon’s Document DB. At the time, the market was concerned MongoDB would lose substantial share to AWS. We thought that was unlikely as during the OSCON conference Amazon had stated that Atlas was the segment winner and that Atlas growth had continued after the AWS DocumentDB release. During that time period, I was particularly fond of this comment by the CEO, which exudes confidence: “Imitation is the sincerest form of flattery, so it’s not surprising that Amazon would try to capitalize on the popularity and momentum of MongoDB. However, developers are savvy enough to distinguish between the real thing and a poor imitation.” Dev Ittycheria, MongoDB’s CEO
Notably, MongoDB is fully valued at 38 forward P/S and won’t rank on cash efficiency in terms of the cloud category. Similar to Snowflake, competing with tech giants costs money and we can see this reflected in the sales and marketing costs with both Snowflake and MongoDB in the upper range for this cost.
Financials:
By Bradley Cipriano
MongoDB reported strong Q2 FY2022 results on 9/2/21 which beat both on the top and bottom-line. The 20%+ move in the stock price coupled with a strong surge in volume following the results suggests that there was a shift in the narrative. If so, MongoDB could be nearing an inflection point, where sales will reaccelerate and grow faster than usual, therefore, attracting a premium multiple.
While sales growth recently accelerated (growing 44% YOY, the fastest pace of growth since Q1 FY2021), the company’s core product, MongoDB Atlas, grew much faster at 83% YoY. This also represented the second quarter in a row where MongoDB Atlas sales accelerated on a YoY basis. Specifically, MongoDB Atlas sales increased 83% YoY, which represented the fastest pace of growth in the last six quarters. As shown in the chart above, MongoDB’s Atlas revenue growth rate has been trending up in recent quarters, suggesting that MongoDB is nearing an inflection point in its growth rate. Atlas accounts for 56% of MongoDB’s total sales and the net sequential dollar increase doubled in the recent quarter from $8 million in revenue to $18 million. Seasonally, Q2 tends to be stronger than Q1, adding to this increase.
Another key indicator that MongoDB’s business is doing well is the increase in downloads of MongoDB’s free basic products. The company utilizes an open-source distribution model, where users can download the basic version of MongoDB’s products for free. Once these users become familiar with the products and integrate them into their work flow, then they often convert to paying customers.
MongoDB reported that downloads in the LTM increased 50% YoY to 75 million, bringing the cumulative downloads of MongoDB to over 200 million. Moreover, the 75 million downloads over the last 12 months was greater than the cumulative downloads in the first 11 years of MongoDB’s existence. Since downloads often result in paying customers, the surge in downloads is a leading indicator of future sales. We can see that MongoDB is taking advantage of the surge in downloads, as the company has ramped its expenditures on sales and marketing expense to convert these new users into customers.
Customer metrics have also accelerated, as customers with ARR over $100k grew to 1,126, up 37% YoY and above the 36% and 30% YoY growth rates in Q1 FY2022 and Q4 FY2021, respectively. Total customer count grew 44% YoY to 29,000+ customers, while Atlas customer increased 46% YoY to 27,500+ customers. It is great to see that customers are driving growth (+44%), rather than an increase in price. Since raising prices is ultimately an unsustainable trend, we prefer to see growth driven by volume (customer count) rather than price.
Another key trend to monitor going forward is international growth, especially growth in Asia. In February 2021, MongoDB announced a global partnership with Tencent Cloud. The company also has a partnership with Alibaba Cloud. These partnerships have benefitted MongoDB, as sales to Asia increased 84% YoY to $20 million. Asia accounted for just 10% of sales in the most recent quarter, which means that there is plenty of runway left to capture share in the Asian market.
In summary, MongoDB appears to be nearing an inflection point as the company’s core product, MongoDB Atlas, has accelerated for two consecutive quarters. This acceleration may continue, as downloads have also greatly increased and downloads are a leading indicator of future sales since free users usually convert into paying customers. There were more downloads in the last twelve months than in the prior 11 years, suggesting that growth will remain robust going forward. MongoDB has also ramped its investments in sales and marketing to convert free users into paying customers, which should help support a further acceleration in sales going forward. Lastly, the company has started ramping in Asia with key cloud partnerships, with a long runway of sales available in the APAC key market.
