Where Will MongoDB Stock Be In 5 Years?

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?

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.

Where Will MongoDB Stock Be In 5 Years?

MongoDB is likely to reach no higher than $291 per share over the next 5 years according to a discounted cash flow forecast analysis.

While analysts are more bullish, virtually every valuation model we examine suggests reasons to be a bit more pessimistic.

For example, a 10-year discounted cash flow forecast analysis paints a picture of fair value around $245 per share while the most optimistic analysis using price-to-sales multiples concludes $309 per share is an appropriate intrinsic value.

The pluses are that net income is expected to grow this year, a high return has been generated over the past decade, and the share price has enjoyed a strong run over the past few months.

On the downside, the heightened competitive threats, slowing pace of revenue growth and high revenue multiples suggest caution is warranted when the stock is viewed through a valuation lens.

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. It’s possible, however, that this has largely been priced in given the poor share price performance over the past 12 months. The stock is down 24% over that time period.

To some extent, the recent upbeat shift among analysts suggests the worst may be over for MongoDB when comparing future estimates to reported numbers. In terms of sentiment, it’s shifting positive with 22 analysts revising their estimates higher. In the past month alone, the share price has reflected the positive sentiment with a 21% share price rise.

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. It’s unlikely to hit 2021 highs of $569 per share anytime soon, but this isn’t a stock to bet against.

Since inception it’s up by 847%, a return so high it suggests product-market fit was achieved long ago, and the company has a lot more tailwinds supporting it than headwinds working to stall progress. On a pullback, MongoDB becomes a very interesting investment opportunity over the medium-term. On a shorter time horizon, it’s probably wise to be wary, though.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.