The last few days have gone very well for MongoDB (NASDAQ:MDB) after the company’s successful IPO on Thursday. As TechCrunch reports, the company finished up 34 percent for the day with a price point of over $32 compared to the IPO price of $24. A further day of trading saw the company’s stock fall to $30.68, but the company has still netted $192 million from the IPO and possesses a valuation of over $1.5 billion.
But plenty of companies start strong with their IPOs and falter later, and investors now have to ask whether MongoDB is worth it at the new price point. Unfortunately, there is no compelling reason to jump in at the current, higher price point. MongoDB does have certain narratives in its favor such as positive coverage boosted by a media which will love to report on a successful New York-based tech stock. But it remains yet another tech IPO with good revenue growth yet no clear path towards profitability, and those who already have this stock should be willing to sell when the lock up period expires. A better plan for now is to sit and wait.
Open Source or Not
MongoDB describes itself in its SEC filing as “the leading modern, general purpose database platform” as it works to manage other companies’ databases. Some of their customers include the Department of Homeland Security, eBay, Adobe, and T-Mobile, and MongoDB states it has over 4,300 customers in 85 countries.
The company wants to portray itself as the next Oracle (NYSE:ORCL) in providing database services, and hopes to argue that it can do more at a fraction of the cost. MongoDB provides open-source software for free like Cloudera Inc (NYSE:CLDR) and Hortonworks Inc (NASDAQ:HDP), two companies which developed open-source database software, went public, and have struggled since.
However, investors should not necessarily assume that MongoDB will struggle for the same reasons. MongoDB is easier to use, and users have to pay a subscription if they want to use MongoDB at its full potential.
The good news for MongoDB is that it has succeeded in poaching clients away from legacy database providers like Oracle and IBM (NYSE:IBM), as revenue has risen from $34 million in the 2014 fiscal year to $91 million in 2016. The bad news is that MongoDB’s losses have risen from $75 million to $85 million in that same timeframe. Losses may not have increased as much as revenue, but so far MongoDB has failed to show that they have a clear path. Like far too many tech IPOs, MongoDB warns that “as our costs increase, we may not be able to generate sufficient revenue to achieve or sustain profitability.”
Sustaining Growth
MongoDB had $92 million in cash before this IPO and indicated that it plans to use the raised funds to expand its corporate efforts rather than pay back debt. The company will need these funds because it faces certain challenges in sustaining its growth.
As noted above, MongoDB views its primary competition as legacy databases like Oracle, but it will have to figure out how to deal with the rise of cloud based databases like Amazon Web Services. MongoDB has done a good job here with the MongoDB Cloud Manager, and its Atlas services are available on AWS as well. And as MongoDB is a bit player compared to the huge amounts Oracle makes through its database services, it can continue to grow for some time at Oracle’s expense.
But that also means the larger companies, such as Instagram, could potentially outmuscle MongoDB by offering bundles and working together with third parties. Due to its size, MongoDB must constantly stay ahead of its competitors in technology and be prepared for the latest in database and cloud technology. While it is successful for now, whether it can continue to compete over the long term is another concern.
Wait for Now
MongoDB has reasons to expect it will continue to thrive in the months to come, but investors need a bit more than optimism. MongoDB has to show in the coming months that it can keep its losses under control and move down the road towards profitability, successfully compete with Oracle, and avoid the faith of other, similar database companies.
As of right now, it has failed to do so and investors should stay away for the moment. If investors are interested in jumping in when the lock up period expires, observe whether MongoDB has succeeded in getting losses to drop as well as customer growth. If it cannot show a consistent ability to grow or tamp down losses, we could be looking at another Snap.The last few days have gone very well for MongoDB Inc. (NASDAQ:MDB) after the company’s successful IPO on Thursday. As TechCrunch reports, the company finished up 34 percent for the day with a price point of over $32 compared to the IPO price of $24. A further day of trading saw the company’s stock fall to $30.68, but the company has still netted $192 million from the IPO and possesses a valuation of over $1.5 billion.
But plenty of companies start strong with their IPOs and falter later, and investors now have to ask whether MongoDB is worth it at the new price point. Unfortunately, there is no compelling reason to jump in at the current, higher price point. MongoDB does have certain narratives in its favor such as positive coverage boosted by a media which will love to report on a successful New York-based tech stock. But it remains yet another tech IPO with good revenue growth yet no clear path towards profitability, and those who already have this stock should be willing to sell when the lock up period expires. A better plan for now is to sit and wait.