MongoDB (MDB) Beats Q2 Expectations, But Slowing Growth And Rich Valuation Make It An Easy Target
2:40 pm Friday, September 02nd, 2022
MongoDB (MDB) is experiencing some mega-sized losses today after the cloud database management company posted upside Q2 results but issued mixed guidance for Q3 and FY23. Although MDB’s revenue outlook for both periods exceeded analysts’ estimates, the company’s FY23 guidance actually implies that Q4 revenue will fall short of expectations. In other words, MDB primarily lifted its full year forecast due to its top-line outperformance this quarter, not because it foresees strengthening demand in the back half of the year. In fact, the opposite holds true as MDB’s executives warned during the earnings call that unfavorable macroeconomic conditions are weighing on its consumption-based model.
In this way, MDB reminds us of another cloud software company with a rich valuation.
When Snowflake (SNOW) issued a disappointing Q1 earnings report in May, the company commented that some of its customers were spending less on its platform due to macroeconomic uncertainties. Much like MDB, SNOW’s consumption-based model allows customers to dial back spending if business conditions worsen. Although SNOW enjoyed a brief rebound rally following its better-than-expected Q2 report on August 24, shares have since tumbled lower. Broader market weakness is partly to blame, but the knee-jerk reaction higher was somewhat surprising in the first place.
Similar to MDB’s FY23 revenue guidance, SNOW’s improved FY23 product revenue outlook was a function of its upside performance in Q2. Specifically, SNOW outperformed its Q2 product revenue guidance by about $29 mln at the midpoint. However, the company only raised its FY23 product revenue outlook by about $17 mln at the midpoint.
The main point is that two substantial cloud software companies that use similar consumption-based models are both expecting a slowdown in the back half of the year. MBD provided some color regarding the specific issues that are hindering its business.
