Global equity markets have experienced wild swings in 2020. The COVID-19 pandemic sent stocks plummeting downwards, as indexes such as the S&P 500 and Dow Jones fell 35% from record highs. The recovery was just as miraculous and several companies are now trading at early 2020 levels.

However, technology stocks have largely been immune to the COVID-19-led turmoil. The shift to remote work and the ongoing digital transformation have continued to drive the top-line growth for several companies including MongoDB (NASDAQ: MDB).

Shares of MongoDB are trading at $219.62 and have gained 64% year-to-date. The stock is up over 600% since its IPO in October 2017 and has been one of the top performers among technology growth stocks.

Mongodb customer growth

What does MongoDB do?

MongoDB aims to transform the way databases work. Several applications are primarily powered by relational databases with traditional rows and columns. However, MongoDB provides a general-purpose database platform that can be deployed for analyzing unstructured data that include images and videos. You can read about the differences in this Couchbase report.

MongoDB’s enterprise-facing platform can be deployed in a private, hybrid or on-premise cloud environment. It is now one of the most popular non-relational database platforms in the world.

In order to target the cloud vertical, it introduced the MongoDB Atlas product while its on-premise product is called MongoDB Enterprise Advanced. The company depends on Atlas to drive top-line growth. In the fiscal first quarter of 2021, Atlas sales were up 75% year-over-year and accounted for 42% of total sales. Comparatively, total sales were up 46% at $130.3 million in Q1.

The on-premise product is hosted by enterprise on their own servers and is generally used by larger organizations who like to have access and control for their data. These two products have an annual run rate revenue of over $450 million with a customer retention rate of a healthy 120%.

Focus on customer acquisition

In the first quarter of 2021, MongoDB grew its customer base by 1,400 to a total of 18,400. Further, the number of customers generating annual recurring revenue north of $100,000 rose to 780, up from 598 in the prior year period.

The company’s focus on customer acquisition has helped it increase sales from $155 million in fiscal 2018 to $421.7 million in fiscal 2020. Analysts expect company sales to reach $529.3 million in 2022 and $682.6 million in 2023.

The ongoing economic uncertainty might lead to lower enterprise tech spending. However, as most companies are accelerating digital transformation efforts, MongoDB’s top-line growth will continue to experience robust growth in the upcoming decade.

MongoDB has a subscription-based business model. This means it generates a recurring stream of revenue across economic cycles and this will help the company offset a part of business cyclicality. In Q1, MongoDB’s subscription sales were up 49% at $125 million and accounted for 96% of total sales.

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What next for MongoDB investors?

According to market research firm IDC, the data management software market is forecast to touch $97 billion by 2023, up from $71 billion in 2020. This pegs the annual growth rate at 11%. MongoDB is a disruptor in database management and is well poised to outpace overall market growth.

MongoDB stock trades at a premium and is valued at a price to sales multiple of 21x. While it is still unprofitable, the company remains a top bet given its expanding addressable market, industry-leading product portfolio, and solid customer acquisition.

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