MongoDB Just Delivered a Beat and Raise Quarter -- So Why Is the Stock Falling?

Investors simply don't know what to make of MongoDB (NASDAQ:MDB). The cloud-native database specialist has been caught up in the popular narrative that artificial intelligence (AI) will eliminate the need for most enterprise software, thereby spelling the end for software-as-a-service (SaaS) companies -- including MongoDB. That's an intriguing story, but largely false, as reality is much more complicated.

Expectations were high heading into the company's quarterly financial report, as investors sought insight into MongoDB's future. Unfortunately, despite delivering a beat-and-raise quarter, confidence remained elusive, and the stock was down roughly 14% in after-hours trading (as of 8:05 p.m. ET).

Let's take a look at the numbers, how MongoDB performed, and why investors panned the results.

Beat and raise

For its fiscal 2027 second quarter (ended July 31), both sales and profit growth came in ahead of expectations. MongoDB delivered revenue that climbed 30% year over year to $772 million -- marking its highest rate of growth in several years. The results were fueled by subscription revenue that grew 31% to $747 million, while services revenue climbed 29% to $24.6 million. At the same time, the company expanded its gross profit margin to 74%, up from 71% in the year-ago period.

The bottom-line results were equally impressive. MongoDB generated an adjusted net income that climbed 86% to $163 million. This resulted in adjusted earnings per share that jumped 90% to $1.90.

For context, analysts' consensus estimates called for revenue of $734 million and adjusted EPS of $1.61, so MongoDB surpassed both benchmarks with ease.

The company continues to add customers to its fully hosted database-as-a-service solution -- Atlas -- which grew revenue by 29% year over year and now represents 73% of the company's total sales.

Helping power the results was MongoDB's robust customer growth. The company added 2,900 customers during the quarter, bringing the total to 70,600, up 18% year over year. Perhaps more importantly, MongoDB's most valuable customers -- those spending more than $100,000 or more in annual recurring revenue (ARR) -- climbed to 2,999, up 17%. Moreover, customers deploying AI on Atlas grew to 30% of ARR.

A robust forecast

For the upcoming third quarter, MongoDB is forecasting revenue of $759 million and adjusted EPS of $1.59, representing growth of 21% and 20%, respectively, at the midpoint of its guidance.

Management also raised MongoDB's full-year forecast following its robust performance. The company is now guiding for revenue of roughly $3 billion, representing growth of 22% at the midpoint of its guidance, which the company says is mainly due to the strength of Atlas. There was a corresponding increase in its profit outlook, with EPS guidance of roughly $6.49, also at the midpoint.

The forecast came in well ahead of analysts' consensus estimates for revenue of $2.96 billion and adjusted EPS of $6.13.

Why is the stock down?

While most of the numbers were good news, investors took issue with MongoDB's Q3 guidance. After turning in a quarter with sales and profit growth of 30% and 90%, respectively, its forecast of roughly 20% growth was something of a letdown.

Enterprise software companies have been under scrutiny lately, driven by the aforementioned AI-related concerns. As such, investors were looking for reassurance that this quarter wasn't a one-off, and MongoDB's Q3 guidance did little to quell those fears.

While that issue certainly bears watching, I think the after-hours sell-off is overdone.

That said, even after the decline, MongoDB stock is still pricey, at 59 times next year's expected earnings. It's difficult for investors to justify a premium valuation when the company is guiding for 20% growth.

Danny Vena, CPA has positions in MongoDB. The Motley Fool has positions in and recommends MongoDB. The Motley Fool has a disclosure policy.