Is MongoDB stock a buy now?

Database Company Shares MongoDB (MDB -0.29%) they were once a high flyer, topping $500 earlier this year. But that changed after the company announced results for its fiscal first quarter, which ended on April 30.

Management noted a slowdown in revenue growth and lowered its guidance for the current fiscal year. MongoDB shares fell quickly, eventually hitting a 52-week low of $212.74 in August.

But on Aug. 29, the company reported results for its fiscal second quarter ended July 31, and after that, the stock started to rise.

Does this turn of events mean MongoDB stock is now a buy? Let’s delve into where his business stands today, with an eye toward assessing whether the stock is a worthwhile long-term investment.

Details behind the MongoDB crash

The stock assessment includes understanding the business conditions that led management to lower revenue guidance earlier this year. One of the key factors involved new customers.

Typically, MongoDB sees new customers increasing their use of the services over time, referred to as customer “workload.” This is an important revenue driver because the company charges based on how much a customer uses its platform. However, in the first quarter, new clients showed slow growth in workload.

As a result, management lowered its fiscal 2025 revenue guidance from a low of $1.9 billion to $1.88 billion. Whenever a company cuts guidance, it raises concerns among investors.

Added to this is the fact that MongoDB is not profitable. It’s common for tech companies to operate at a loss for years while investing profits in pursuit of rapid business growth. But that expansion appeared to be over for MongoDB when it lowered its revenue guidance, prompting a stock selloff.

The road to recovery

Management took action by changing the incentive structure for its sales force to focus on acquiring enterprise customers.

These large businesses bring more growth potential. According to CEO Dev Ittycheria, “Incremental investments in large accounts have disproportionate returns in terms of workload acquisition and subsequent account growth.”

Now for MongoDB’s Q2 fiscal results. Revenue rose 13% year-over-year to $478.1 million as its cloud-based Atlas platform saw better-than-expected usage. Atlas revenue rose 27% year-over-year to $339.7 million, which is a positive sign as the product accounted for 71% of total Q2 revenue.

And the company came out of the second quarter with a healthy balance sheet. Assets totaled $3.1 billion, of which $1.3 billion was cash and cash equivalents. Total debts were $1.8 billion.

Additionally, MongoDB is experiencing strong customer retention and continues to add new customers. The company ended the second quarter with 50,700 customers, up from 45,000 a year earlier.

Its second-quarter results prompted Ittycheria to say, “Our performance in Q2 reinforced our belief that the slow start to new business in Q1 was purely operational.”

As a result, the company adjusted its forecast for 2025 again, this time raising it to at least $1.92 billion. Given that it beat the original low-end sales estimate of $1.9 billion, MongoDB shares soared.

Decision on MongoDB shares

As part of stock valuation, a key consideration is the company’s strategy for long-term success. It sees artificial intelligence (AI) as a key long-term headwind for its business.

AI requires a lot of data to perform tasks correctly. This is stored in databases such as Atlas. MongoDB’s database structure, which eschews traditional tables, provides a flexible repository for all types of data.

This is an important feature in the AI ​​era, as the technology comes from a variety of data sources. MongoDB’s approach allows customers to avoid complex back-end IT infrastructure, such as the need for multiple databases to store different types of data.

Another factor to weigh when evaluating an investment in MongoDB is what Wall Street thinks. The consensus among analysts is an overweight rating with a median price target of $330 for the stock, indicating a belief in its upside.

Given that databases are integral to how applications and AI access information and management’s ability to course-correct after the first quarter, MongoDB stock is a buy from my perspective.

The stock is still well below its 52-week high of $509.62, and its offerings are among the top five most popular database management systems in the world. Add to that its excellent track record and loyal customer base, and MongoDB is well-positioned to benefit from AI to drive long-term growth.