Shares of database company MongoDB(NASDAQ: MDB) were once a highflier, exceeding $500 earlier this year. But that changed after the company announced results for its fiscal first quarter, ended April 30.
Management noted a slowdown in revenue growth and reduced its guidance for the current fiscal year. MongoDB stock promptly plunged, eventually reaching a 52-week low of $212.74 in August.
But on Aug. 29, the company reported results for its fiscal second quarter, ended July 31, and after that, shares began climbing.
Does this turn of events mean MongoDB stock is now a buy? Let's dive into where its business is today with an eye toward assessing whether the stock is a worthwhile long-term investment.
Details behind MongoDB's crash
Evaluating the stock includes understanding the business conditions that caused management to cut revenue guidance earlier this year. One of the key factors involved new customers.
MongoDB typically sees new clients ramp up use of its services over time, referred to as the customers' "workload." This is an important revenue driver because the company charges based on how much a client uses its platform. However, in the first quarter, new customers exhibited slow workload growth.
As a result, management reduced its fiscal 2025 revenue guidance from a minimum of $1.9 billion to $1.88 billion. Anytime a company reduces guidance, it raises concerns among investors.
Adding to this is the fact MongoDB isn't profitable. It's common for tech companies to operate at a loss for years as they pour profits into pursuing rapid business growth. But that expansion seemed to be ending for MongoDB when it cut its revenue guidance, resulting in a sell-off of shares.
The road to recovery
Management took action, changing the incentive structure for its sales team to emphasize the acquisition of enterprise customers.
These large businesses bring higher growth potential. According to CEO Dev Ittycheria, "Incremental investments in large accounts have disproportionate returns in terms of workload acquisition and subsequent account growth."
Now for MongoDB's fiscal second-quarter results. Revenue rose 13% year over year to $478.1 million as its cloud-based Atlas platform experienced better-than-expected use. Atlas income increased 27% year over year to $339.7 million, which is a positive sign since the product accounted for 71% of total second-quarter revenue.
And the company exited the second quarter with a healthy balance sheet. Assets totaled $3.1 billion with $1.3 billion of that in cash and equivalents. Total liabilities were $1.8 billion.
Moreover, MongoDB is seeing strong customer retention and is continuing to add new customers. The company ended the second quarter with 50,700 clients, up from 45,000 in the previous year.
Its second-quarter results led Ittycheria to say, "Our Q2 performance reinforced our belief the slow start to the new business in Q1 was purely operational."
Consequently, the company once again adjusted its 2025 full-year forecast, this time raising it to at least $1.92 billion. Given that this exceeded its original minimum sales forecast of $1.9 billion, MongoDB stock rose.
Deciding on MongoDB shares
As part of evaluating the stock, one key consideration is the company's strategy for success over the long run. It sees artificial intelligence (AI) as a crucial long-term tailwind for its business.
AI require lots of data to correctly execute tasks. This is stored in databases such as Atlas. MongoDB's database structure, which eschews traditional tables, provides a flexible repository for all kinds of data.
This is an important feature in the era of AI, since the technology is pulling from a variety of data sources. MongoDB's approach allows customers to avoid complex IT back-end infrastructure, such as the need for multiple databases to store different types of data.
Another factor to weigh when assessing an investment in MongoDB is what Wall Street thinks. The consensus among analysts is an overweight rating with a median price target of $330 for the stock, indicating a belief in its upside.
Considering databases are integral to how apps and AI access information, and management's ability to course-correct after the first quarter, MongoDB shares are a buy from my perspective.
The stock is still well below its 52-week high of $509.62, and its offerings are among the top five most-popular database management systems in the world. Add to this its excellent balance sheet and loyal customer base, and MongoDB is well positioned to benefit from AI to drive long-term growth.
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