MongoDB’s [MDB] share price has seen huge gains this year, closing at $277.63 on 4 December – 112.5% above its 2020 opening price of $130.61. It posted an all-time intraday high of $289.79 a few days earlier on 30 November. With Q3 earnings due to be announced on 8 December, investors will hope above all for signs of tightening losses and positive guidance revisions for this forward-looking growth stock.
It has not been an entirely positive year for MongoDB’s share price, with the March market slump dragging the NoSQL database firm’s stock down to $93.81. However, as tech companies in general adjusted well to the conditions of the coronavirus pandemic, MongoDB’s share price staged a strong recovery, soaring as high as $234.92 by early June. The trend line for MongoDB’s share price broadly flattened for several weeks from there, before climbing to a new intraday peak of $272.56 by 16 October.
November’s closing highpoint comes at the end of a few months’ volatility for MongoDB’s share price, caused by the uncertainty that surrounded the US presidential election as well as conflicting reports about the possible end of the pandemic conditions that have led so many tech stocks to soar this year.
Zacks Equity Research are forecasting sales will closely resemble those of Q2, with a consensus estimate of $138.48m sandwiched between high and low estimates of $139m and $138m respectively, leaving little prospect of variation. The consensus estimate represents a 26.5% increase year-over-year, though only a modest 0.1% increase on the $138.28m posted last quarter.
Losses, however, are set to more than double from the previous quarter, from -$0.22 per share to a consensus estimate of -$0.46. Year-over-year, the consensus estimate represents a 76.9% fall in profitability, with the most pessimistic analysts predicting losses hitting -$0.47 per share.
MongoDB's forecasted Q3 sales
How does this square with MongoDB’s share price rally? The stock’s success could be partly to do with the surprise factor: every earnings report since July 2018 has beaten Zacks analysts’ expectations by at least 7% — in the two most recent earnings reports, MongoDB surprised by more than 40%. In other words, although the company has consistently made losses, these losses are also consistently smaller than expectations, meaning MongoDB is approaching profitability faster than analysts have historically expected it to.
“Management has optimized the business model for maximum top-line growth,” Anders Bylund wrote in The Motley Fool. “Earnings and cash flows will have to wait a few years while MongoDB builds out a huge customer base and strong revenue streams.”
“Management has optimized the business model for maximum top-line growth. Earnings and cash flows will have to wait a few years while MongoDB builds out a huge customer base and strong revenue streams” - Anders Bylund
Nevertheless, MongoDB is overvalued according to Michael Wiggins De Oliveira. He noted in Seeking Alpha that revenue growth rates are slowing, from 52% year-over-year last year to a high forecast of 27% for the upcoming set of results. According to current guidance, the equivalent figures for the next quarter are likely to be below 20%, which undermines the argument that MongoDB is a fast-growing stock, especially given the premium applied to all companies in the software-as-a-service (SaaS) space, many of whom are undervalued compared to MongoDB.
The most decisive element of the December earnings announcement, therefore, is likely to be the revised guidance for the upcoming fiscal years, since MongoDB is currently attracting a large premium on the assumption that this guidance for Q4 will be raised. MongoDB’s share price could well fall if this increase doesn’t materialise.
Big data analysis
Nonetheless, most analysts covering MongoDB currently take a positive stance. The consensus among 15 polled by CNN Money was to buy the stock, with nine analysts on the panel giving it this rating and the rest recommending Hold. This rating has held steady since September.
Analysts aren’t forecasting dramatic changes in MongoDB’s share price in either direction over the coming year, with 11 analysts offering 12-month price forecasts yielding a median estimate of $290, 4.5% above MongoDB’s share price as of close on 4 December. The highest estimates predict an increase of 19.2% to $331, while the lowest predict the stock will fall 11.7% to $245.