Q2 2025 Earnings Summary
- Atlas is experiencing strong growth, significantly outpacing industry growth rates and capturing market share, driven by its widespread availability across major cloud providers, its general-purpose capabilities, and a large developer community.
- MongoDB is well-positioned to capitalize on AI-driven workloads due to its flexible document model, which efficiently handles the rich and complex data structures required by AI applications, making it the ideal data layer for AI apps.
- The company is balancing strong revenue growth with improving operating margins, demonstrating operational efficiency and the ability to invest in growth areas like AI while maintaining financial discipline.
- MongoDB anticipates a slower-than-typical seasonal rebound in Q3 and significantly lower sequential growth in Q4 compared to historical patterns, due to slower growth in prior cohorts and compounding effects over the year, which may indicate ongoing challenges in accelerating growth.
- AI-driven revenue benefits are still in very early stages, and while there is significant interest and pilots show promise, these initiatives may not contribute meaningful revenue in the near term, potentially limiting immediate growth prospects from AI investments.
- Atlas revenue faces tough year-over-year comparisons due to headwinds from unused commitments and slower growth in prior cohorts, which may constrain reported growth rates and impact revenue growth in the near term.
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Revenue Guidance Drivers
Q: What is driving the strong Q3 revenue guidance?
A: Michael Gordon explained that the higher-than-expected Q2 results led to a stronger starting ARR in Q3, but growth assumptions for Q3 and Q4 remain unchanged. The positive impact also comes from increased strength in the Enterprise Advanced (EA) pipeline for the second half. However, they face headwinds from tough year-over-year comparisons due to unused commitments and multiyear EA deals. -
Atlas Consumption Growth
Q: Why did Atlas consumption growth outperform expectations in Q2?
A: Michael Gordon noted that Q2 Atlas consumption growth was better than expected, within a reasonable range, but saw no signs of macroeconomic changes. The improved performance was broad-based, including slightly better workloads, though still below original expectations. -
EA Strength and Pipeline
Q: What is driving the strong EA performance and pipeline?
A: Dev Ittycheria attributed the better-than-expected EA performance to improved execution and customer appreciation of MongoDB's "run anywhere" strategy. Michael Gordon mentioned strength in EA is not uniquely tied to AI but reflects overall demand and multiyear commitments. -
Clarification on Q1 Issues
Q: Was the Q1 slowdown due to macro factors or operational issues?
A: Dev Ittycheria clarified that while the slowdown in existing workload consumption was due to macro factors, the slow start in new business was operational. In Q2, new business performed better than expected in both Atlas and EA, indicating the Q1 issue was operational. -
AI Impact and Modernization Pilots
Q: How will AI-driven modernization pilots impact growth?
A: Dev Ittycheria believes AI has created a shortcut for modernizing legacy applications by automating code recreation, offering significant time and cost savings. Although it's early days, there's a growing pipeline of customers interested in this approach. -
Competition with Postgres
Q: How does MongoDB compete against Postgres, especially for AI applications?
A: Dev Ittycheria emphasized that MongoDB handles complex data structures required for AI workloads better than relational databases like Postgres. MongoDB's schema flexibility, horizontal scalability, and performance with large datasets give it an edge. They compete well against Postgres but acknowledge that Postgres consolidates the relational market. -
Gross Margins Outlook
Q: What is the outlook for gross margins, and how will prepayments impact them?
A: Michael Gordon stated that Atlas gross margins continue to be lower but the gap has shrunk. Prepayments and IPv4 purchases will benefit gross margins, but not significantly in fiscal '25. -
Q4 Revenue Guidance
Q: Why is Q4 revenue growth expected to be lower sequentially?
A: Michael Gordon explained that tough year-over-year comparisons due to unused commitments in Atlas and multiyear EA deals are factors. Additionally, a slower seasonal rebound in Q3 has implications for Q4. -
New Services Contribution
Q: How are new services like Vector Search and Stream Processing contributing?
A: Dev Ittycheria reported solid momentum in Search, with success from Search Nodes. Vector Search adoption is growing, attracting new customers. Stream Processing has seen strong interest since its general availability in May, though it's still early. -
Federal Government Opportunities
Q: What are the expectations for the federal government vertical?
A: Dev Ittycheria stated that with the fiscal year ending in September, they see opportunities in the federal sector. MongoDB has FedRAMP Moderate certification and is working towards FedRAMP High, which will expand opportunities. They are selling EA to these customers, which is included in their guidance.
Research analysts covering MongoDB.