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MongoDB Shows Why Some Growth Stocks Are Worth a High Price

Shares of cloud-based database specialist MongoDB (NASDAQ: MDB) popped in after-hours trading on Monday, following the company's fiscal third-quarter earnings release. The tech company posted some astounding results, giving investors a reminder that some fast-growing companies' stocks deserve to trade at high premiums.

Revenue for the quarter accelerated, crushing analyst estimates. MongoDB's fiscal fourth-quarter guidance was impressive, too.

Here's a closer look at the results.

Image source: Getty Images.

Soaring revenue

MongoDB's fiscal third-quarter revenue increased 50% year over year. This was the company's third consecutive quarter of accelerating revenue. The acceleration was particularly impressive in this quarter and last quarter, with MongoDB's reported revenue growth rate increasing from 39% growth in the first quarter of fiscal 2022 to 44% in fiscal Q2 and now 50% in fiscal Q3.

MongoDB's 50% revenue growth put total revenue for fiscal Q3 at $227 million. This was far beyond analysts' average forecast for revenue of $205 million during the period.

Providing fuel for this strong growth was continued momentum in Atlas, the company's fully managed cloud database. The product has been a consistent and powerful growth driver for MongoDB for years. Atlas revenue increased 84% year over year during the period.

A sustainable growth opportunity

Better yet for investors, these are probably still early days for MongoDB, with its 31,000-plus customers. After all, MongoDB's cloud-based database is not only important for companies to innovate faster and compete better, but it is also becoming an enterprise standard for application development. This is good news for both MongoDB's value proposition to prospective customers and existing customers.

"Our success across industries and a wide variety of use cases puts us in a great position to build even deeper relationships with our customers over time," said MongoDB CEO Dev Ittycheria in the company's fiscal third-quarter earnings release.

Strong guidance

MongoDB's revenue guidance was also well ahead of analysts' consensus view. The company said it expects fiscal fourth-quarter revenue to come in between $239 million and $242 million. Analysts, on average, were expecting revenue of $228 million for the period.

Management also notably guided for a narrower-than-expected non-GAAP (adjusted) loss per share. Specifically, MongoDB said it expects its fiscal fourth-quarter adjusted loss per share to be between $0.21 and $0.24. Analysts, on average, were expecting an adjusted loss per share of $0.34 for the period.

The strong results help justify the stock's $28 billion market capitalization at a time that some investors seem to be questioning the high valuations of fast-growing tech companies. The clear strength and durability of the company's growth opportunity as revenue growth accelerates shows how high-quality tech companies can sometimes defy gravity as they capitalize on major trends like organizations' digital transformations and the opportunities created from unlocking the power of data in an increasingly digital world. If MongoDB can sustain high growth rates over the next five years the way it has over the past five -- and benefit from operating leverage while it's at it -- then this stock could live up to investors' high expectations over the long haul.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends MongoDB. The Motley Fool has a disclosure policy.


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