On Friday, DA Davidson shifted its stance on MongoDB (NASDAQ: NASDAQ:MDB), transitioning the stock's rating from Neutral to Buy and adjusting the price target upwards to $430 from the previous $405.
The revision follows the company's after-hours guidance announcement, which indicated a projected year-over-year growth of 13-15% for fiscal year 2025, contrasting with the consensus expectation of 22%. Additionally, the operating margins (OMs) are forecasted to be around 10%, compared to the consensus of 14%.
The analyst from DA Davidson highlighted that MongoDB's revenue in FY25 is expected to encounter an $80 million challenge due to the non-recurring aspects of multi-year term licenses and unused Atlas (NYSE:ATCO) commitments, each accounting for $40 million.
This situation is anticipated to affect growth rates by approximately 5 percentage points. The high gross margin revenue that will not repeat, coupled with an uptick in hiring, is set to cause operating margins to retract from the 16% seen in FY24.
Despite these headwinds, DA Davidson remains optimistic about MongoDB's future performance. The analyst's commentary suggests that the conservative guidance, particularly concerning the Atlas platform's deceleration, presents a significant opportunity for upside. The firm believes that the market's expected level of Atlas slowdown is overly cautious, and consequently, MongoDB's stock holds a promising potential for growth.
This upgrade comes as MongoDB's shares experienced a 9% drop in after-hours trading on the day of the announcement. The company's forward-looking statements have set a cautious tone for FY25, reflecting the impact of certain high-margin revenues that are not expected to recur and an aggressive hiring strategy.
Despite these challenges, DA Davidson sees the current guidance as an underestimate of MongoDB's capabilities, suggesting a likelihood of exceeding the modest expectations set forth for the Atlas platform.
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