Better cloud storage: Salesforce vs. MongoDB

Salesforce (CRM -1.91%) and MongoDB (MDB -2.61%) represent two different ways to invest in the growing cloud market. Salesforce is the world’s largest provider of cloud-based customer relationship management (CRM) services and offers additional marketing, e-commerce, analytics and enterprise collaboration services. MongoDB helps companies organize their unstructured data with its database services.

Over the past five years, Salesforce shares have risen about 60% as MongoDB shares have risen more than 90%. Let’s see why the smaller database vendor has overtaken the CRM leader — and whether this trend will continue in the near future.

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Salesforce pivots from growth to profitability

From fiscal 2018 to fiscal 2023 (which ended in January 2023), Salesforce’s revenue grew at a compound annual growth rate (CAGR) of 24% as adjusted earnings per share (EPS) grew at a CAGR of 31%. Some of that growth was organic, but much of it came from big acquisitions like Mulesoft, Tableau, and Slack. But as its growth slowed in the second half of fiscal 2023, it came under siege from more activist investors.

To appease these activists, Salesforce laid off thousands of employees, halted major acquisitions, approved a large buyback plan and initiated its first dividend. In fiscal 2024, Salesforce’s revenue grew just 11%, but adjusted operating margin expanded 800 basis points to 30.5% as adjusted EPS rose 57%. It has repurchased $18.1 billion in shares (out of its $30 billion authorization) since the start of fiscal 2023.

For fiscal 2025, Salesforce expects its revenue to grow just 8%-9%, adjusted operating margin to grow to 32.5%, and adjusted EPS to grow 22%-23%. It mainly attributes its sluggish sales growth to macro headwinds, but also faces stiff competition from other cloud giants such as Microsoft and Adobe. It also focuses more on growing its bottom line instead of acquiring more companies.

Salesforce’s prioritization of profit growth over revenue growth indicates that its business is maturing. It has released more generative AI tools to analyze data and automate tasks in its ecosystem, but those services aren’t moving the needle or growing sales yet. Its shares look reasonably valued at 26 times forward earnings, but its low forward yield of 0.6% won’t attract any serious income investors in this high-interest environment.

MongoDB is gearing up for a major slowdown

From fiscal 2018 to fiscal 2023 (which also ended in January 2023), MongoDB’s revenue grew at a CAGR of 51%. It also became profitable on an adjusted basis in fiscal 2023.

MongoDB grew rapidly because the non-relational database, which collected unstructured data, was more flexible and customizable than older relational databases that relied on rigid tables and charts. Its cloud-based Atlas service could also be integrated into a wide range of cloud infrastructure platforms, such as Amazon Web Services (AWS) and Microsoft Azure, which made it an attractive option for companies that used multiple cloud services.

In fiscal 2024, MongoDB’s revenue grew 31%, adjusted operating margin tripled to 16.1%, and adjusted EPS increased 311%. But for fiscal 2025, expect its revenue to grow only 14%-15%, adjusted operating margin to fall to around 10% and adjusted EPS to fall 26%-30%.

It blames the deceleration on headwinds, reduced upfront commitment requirements for new customers, difficult year-over-year comparisons with some large multi-year deals in fiscal 2024 and slower growth in its non-Atlas services. It also expects the expansion of its sales teams to squeeze margins as growth cools.

That mix of slowing growth and shrinking margins is worrisome, but MongoDB stock still looks expensive at 130 times forward earnings estimates. One might expect its growth to accelerate again as companies store more data on its platform to support their new AI services, but I’m not sure those expectations justify such a high valuation.

Buy Better: Salesforce

I wouldn’t rush to buy any of these stocks. Salesforce’s tight focus on its profits could inadvertently erode defenses and limit long-term sales growth, while MongoDB still has plenty of macro and competitive hurdles to overcome.

But if I had to pick one over the other right now, I’d pick Salesforce because it’s bigger, more diversified, has higher operating margins, and trades at a more reasonable valuation. MongoDB may continue to grow, but its sales growth needs to stabilize with margins expanding again before I consider it a worthwhile investment.