MongoDB has surely been one of the rising stock market stars in the past. In today´s post, we analyze the company, the shares, and its economy in some more detail. Would you buy it?
Who is MongoDB – A High-Level Understanding
MongoDB is a company in the IT industry. More specifically, it is very strong in the cloud computing industry. It provides a database solution for documents-oriented databases in the NoSQL category.
Founded in 2007, MongoDB went on the stock market (IPO) in 2017. Back then, the shares were available for a price of 24 dollar! If you had bought some shares worth 1,000€ back then, they would be worth more than 15,000€!
MongoDB is a relatively small company with a strong growth. In 2021, there are about 2,500 employees working for the organization. However, the number of employees has a year-over-year growth rate of about 40-50%! Similarly, the company´s revenues show a steep increase: In Q1, the company communicated revenues (over the past 12 months) of 590 million dollars, however, the year-over-year increase is also about 40%!
Another fact that underpins that MongoDB is still in its growth phase is that it is still loosing money every quarter – not being profitable. The earnings per share have always been negative in the past and they are expected to be about -1.24 dollar for 2021.
Nevertheless, the strong growth leads to a current market capitalization (the price of all shares on the market) of about 20 billion Euros. If you ask me, this is really a lot for a company that is not profitable.
The business model of MongoDB is predominantly based on cloud computing
First, we need to understand the rough context of MongoDB´s product. MongoDB provides a solution to store data in the cloud. As it is based on open source, everybody can access the code and view how exactly it is built. Because it is open source, it is also compatible with all major cloud providers.
If you are wondering if AWS, MS Azure and Co. are competitors of MongoDB, do not worry. The focus of those cloud providers is to provide the infrastructure and basic services around cloud computing. However, in order to actually use and benefit from cloud, a company needs to use services on that cloud.
Although those cloud providers offer many of such services on their own, they also provide third-party services on their platforms. MongoDB is one of those. As MongoDB is independent from any individual cloud provider, many customers actually prefer the independent services. This minimizes risks coming from such dependencies. In contrast, services from the cloud providers itself increase the dependency on particular providers.
Concluding, MongoDB´s potential customer base increases with the overall size of the cloud market. This is an excellent position, as the overall cloud market is still growing with roughly 20 to 25 percent per year.
MongoDB uses a modern and important technology
Second, we take a deeper look at the actual solution that MongoDB provides. We already mentioned that MongoDB provides a solution that helps to store data, especially documents, in the cloud. With the beforementioned growth of cloud usage and the exponential increase of data worldwide, this is a business field with a bright future!
There are mainly two ways of how such data can be stored, which are called “SQL” and “NoSQL”. MongoDB provides a well-established solution for the NoSQL approach.
While you can imagine an SQL database as large Excel spreadsheet, a NoSQL database is like a physical desk. On that desk, you can put many different things that can stay in different relations to each other. NoSQL therefore allows you to store more complex, non-relational data. It also allows to benefit more from the advantages of cloud computing (scalability).
The Unique Selling Proposition: Why would you want to buy MongoDB shares?
There are a few distinct advantages that make an investment into MongoDB special:
- The product that the company offers is compatible with all major cloud providers as it is open-source based.
- It is very well known and has a good reputation in the industry.
- The more customers, the more people with the right skills, the bigger the community, and the more attractive the product. In other words, MongoDB benefits from a typical platform effect.
What are risks of investing into MongoDB shares? What do I need to consider?
First of all, MongoDB is a relatively new company and therefore lacks historic data. It also provides only a small set of different products and moreover, they are very specialized. Compared to large organizations (e.g., Microsoft, Unilever), which are much better diversified and pose less risk in that regard. If you are interested in more diversified companies, Walt Disney might surely be worth looking at!
A major threat to MongoDB´s success would be if another company invented a new technology that better met today´s needs. For instance, a faster or more flexible product from a competitor would be problematic for MongoDB.
Taking an objective approach to the risk of a share, we consider the share´s beta. It is an indicator that measures the relative movements (up and down) of a share compared to the overall market. If the indicator is over 1.0, the share is generally more risky than the average market. If the indicator is below 1.0, the share is less risky. This is also called, a “defensive” share.
For MongoDB, the beta is 0.74 (calculated by stocksregister).
What are Characteristics of the MongoDB share?
First of all, MongoDB does not pay any dividends – which is normal for companies that are not yet profitable.
Looking at the return on invest over past periods, we get beautiful results:
- Over the past 3 years, MongoDB shares grew by over +40%
- Over the past 12 months, they increased by more than +76%
- Over the last three years, they even increased by more than +454%
Obviously, the average market return (here: the MSCI world) cannot keep up with that pace at all:
- Over the past 3 months, the MSCI World increased by +10%
- Over the past 12 months, it increased by +33%
- Over the past 3 years, it increased by +49%
What trends are important for the success of MongoDB?
- Cloud Usage
- Storage of data
- Fast, flexible, open-source solution
All trends that are quite important already today, but even more in the future.
What´s the Corona impact on MongoDB?
MongoDB operates in the Digital area. Such companies received a great hype during Corona. With them, also MongoDB shares grew a lot during that time. With Corona coming to an end, it is likely that revenues will grow slower in the future.
However, data will still be stored in the cloud. It will not be deleted just because it is again possible to meet physically. A contrast to this would be Amazon: Amazon´s customer base is likely to decrease after Corona, as physical shops can open again.
Concluding, Corona definitely pushed the revenues of MongoDB, however, the increased revenues are likely to be permanent. This is because of the nature of the service. Finally, keep in mind that revenues and share prices are not always closely related. Especially as the share price reflects, if at all, future revenue expectations.
Is MongoDB a sustainable company?
I could not find any specific news or statements about sustainability at MongoDB. Therefore, we should bare in mind what holds true for all digital companies.
Digital companies do not require many physical resources and they do not directly produce any waste, harmful emissions etc. However, datacenters (which are the backbone of cloud computing) are an important CO2 emissions cause. They require a lot of electricity and cooling. Generally, the more data is stored in a datacenter and the more powerful it is, the higher will be its emissions.
In general, however, every digital company has a huge sustainability advantage. Oil, tobacco, or military companies or even companies producing physical products, need to be much more aware of sustainability.
Am I investing in MongoDB?
Yes, MongoDB is one of my favourites in my portfolio. I believe that the success story will go on, especially due to the high growth rates in the past and an exploitation of strong future trends. However, there are risks that might lead to a sharp share price decrease in the future. First, today´s price is quite high (partially due to Corona), second, the company is not profitable. This is why I would recommend to buy shares over a period of time – and not invest everything at once.