Q4 2024 Earnings Summary
- MongoDB is well-positioned to capture the growing demand for AI-enabled applications, leveraging its flexible document model, ability to handle real-time data at scale, and unified platform. The integration with Generative AI technologies can lower the cost and time of migrating from legacy relational databases to MongoDB, expanding its potential customer base.
- Stable consumption trends in Atlas and increased confidence in guidance suggest that MongoDB is poised for strong performance. The company has more confidence going into this year than last year due to stable consumption with less variability and a better understanding of seasonality trends, potentially leading to outperformance similar to the prior year.
- MongoDB continues to see strong demand for its Enterprise Advanced (EA) offering, as customers appreciate its ability to serve as an on-ramp to the cloud and to modernize applications even in regulated or on-premise environments. This ongoing demand supports revenue growth and customer expansion.
- MongoDB expects a significant revenue headwind in fiscal 2025 due to $80 million of fiscal 2024 revenue that won't repeat, which was "very high margin," making for an exceptionally tough operating margin comparison. This includes approximately $40 million from unused Atlas commitments and $40 million from multiyear license revenue that are not expected to recur in fiscal 2025.
- Operating margins are expected to decline year-over-year as MongoDB increases investments in sales capacity and headcount growth, coupled with the absence of the high-margin revenue from fiscal 2024. Michael Gordon stated that operating income will decline sequentially due to lower revenue as well as our increased pace of hiring, leading to an operating margin decline despite 500 basis points of margin expansion on a two-year basis.
- Atlas revenue is expected to be flat to slightly down sequentially in Q1, due to factors such as two fewer days in the quarter, slower consumption growth during the holidays affecting Q1 more than Q4, and a decline in unused Atlas commitments. This suggests potential slowing growth in MongoDB's primary growth driver, which could pressure overall revenue growth.
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Fiscal '25 Guidance and Revenue Adjustments
Q: Why does the FY'25 guidance resemble last year's despite a better environment?
A: Adjusting for $80 million in revenue that won't repeat from unused commitments and multiyear deals , the guidance reflects a stable environment. We haven't changed our approach to guidance and see more stable consumption, giving us higher confidence. -
AI Adoption and Business Impact
Q: When will AI start to impact your business significantly?
A: AI applications at scale will likely impact us in at least another year. While we see interesting startups using MongoDB, customers are mainly in the experimentation phase. The performance and cost of AI systems need improvement before widespread deployment. -
Sales Capacity Constraints and Hiring
Q: Are sales capacity constraints affecting growth guidance?
A: Yes, we had slowed hiring due to macro uncertainty but are now increasing headcount growth to mid-to-high teens. With more productive sales capacity, guidance would probably be higher. -
Competition with Snowflake and Databricks
Q: How do you view competition with Snowflake and Databricks?
A: We don't typically compete with them as they focus on analytical workloads, while we focus on operational workloads. Developers are our primary focus, and we feel confident in our position despite new products like Snowflake's Unistore. -
Enterprise Advanced (EA) Trends
Q: Is the trend of customers modernizing on-premise with EA still valid?
A: Yes, customers appreciate EA as an on-ramp to the cloud, especially if they can't fully move to the public cloud. EA outperformed expectations in FY'24 but such multiyear deals won't repeat at the same level in FY'25. -
Relational Migrator Demand
Q: What is driving demand for Relational Migrator?
A: Customers are moving off legacy relational databases due to inflexibility, scalability issues, and cost. Generative AI lowers the cost of rewriting applications, accelerating migrations to MongoDB. -
Operating Margin Guidance
Q: Why is operating margin guidance lower for FY'25?
A: We plan to invest in our opportunity, particularly in sales capacity and product roadmap execution. Despite delivering 50 of 55 points of margin improvement since IPO, we're still at 2% market share, so it makes sense to invest. -
Unused Commitments Impact
Q: How do unused commitments affect revenue?
A: The $40 million from unused commitments in FY'24 will diminish as we prioritize consumption-based models. This change affects a small number of customers and will be most pronounced in Q1. -
Atlas Stream Processing
Q: When will Atlas Stream Processing be generally available?
A: It's currently in public preview, and we're gathering feedback before making it generally available. We're well-positioned due to focusing on developers and handling real-time, flexible schema data. -
Overage Revenue Changes
Q: Will overage revenue from unused credits continue next year?
A: No, we expect the $40 million recognized in FY'24 to go to zero. This is due to changes in our go-to-market strategy, focusing less on commitments and more on driving workload adoption.