MongoDB Inc. (MDB) shares are taking a beating on Wednesday, down over 13% in premarket trading. The culprit? A combination of slowing growth guidance and a cloud business that seems stuck in neutral, despite a solid second-quarter earnings beat.
The database company reported adjusted earnings of $1.90 per share, easily topping the analyst estimate of $1.61. Revenue also impressed, climbing 30% year over year to $771.77 million, beating the $732.91 million consensus. But investors are looking ahead, and what they see is a growth engine that's losing steam.
For the third quarter, MongoDB expects revenue growth of about 20.5% at the midpoint, a sharp deceleration from the 30% growth it just posted. That's a tough pill to swallow for a stock trading at a premium valuation, especially after a strong run-up into earnings.
Margins Are Expanding, But Is It Enough?
It wasn't all bad news. MongoDB's profitability metrics showed significant improvement. Adjusted operating income more than doubled to $186 million, with the adjusted operating margin expanding to 24% from 15% a year earlier. Adjusted gross margin also rose 210 basis points to 75.9%, and subscription gross margin ticked up 70 basis points to 78.3%.
The company's balance sheet remains robust, with $2.4 billion in cash and short-term investments at quarter's end. Operating cash flow came in at $142 million, and free cash flow hit $138 million. MongoDB also returned $100 million to shareholders through buybacks during the quarter.
One particularly bright spot: remaining performance obligations jumped 91% to $1.52 billion, with the current portion up 73%. That suggests strong future revenue visibility, even if near-term growth is slowing.
Record Customer Growth and AI Momentum
MongoDB added a record 2,900 net new customers in the quarter, bringing its total to 70,600. Nearly 3,000 customers now generate at least $100,000 in annual recurring revenue, up 17% from a year ago.
The company is also making strides in AI. Demand for Atlas Vector Search and Voyage AI embeddings is supporting growth, and MongoDB recently introduced a managed MCP server for AI applications. Voyage AI's customer base nearly doubled sequentially for the second straight quarter, a sign that the company's AI bets are starting to pay off.
The Atlas Conundrum
But here's the rub: Atlas, MongoDB's flagship cloud database, grew revenue about 29% for the fifth consecutive quarter. While that topped the company's own forecast, the lack of acceleration is concerning to investors who were hoping for a bigger push from AI-related workloads.
Atlas added a record $127 million in year-over-year revenue, and its customer base swelled to 69,300 from 58,500 a year earlier. The net annual recurring revenue expansion rate also improved to 122% from 119%. Enterprise Advanced and other revenue grew about 36%.
Still, when a stock has rallied as much as MongoDB's has, investors want to see momentum accelerate, not plateau. The flat growth rate, even at a healthy 29%, may have been the trigger for the sell-off.
Guidance: A Mixed Bag
Looking ahead, MongoDB raised its fiscal 2027 adjusted earnings outlook to $6.39 to $6.58 per share, up from the analyst estimate of $6.11. Revenue is now expected to be between $2.99 billion and $3.03 billion, compared with the $2.95 billion consensus.
For the third quarter, the company projects revenue of $756 million to $761 million and adjusted earnings of $1.57 to $1.61 per share, both above analyst expectations. MongoDB also guided for fiscal 2027 Atlas growth of about 27% and Enterprise Advanced and other revenue growth of about 11%.
So why the sell-off? It comes down to expectations. MongoDB's stock had rallied significantly ahead of earnings, and its valuation already priced in perfection. The deceleration in Q3 growth guidance, combined with Atlas's persistent 29% growth rate, was enough to spook investors.
As of premarket trading on Wednesday, MongoDB shares were down 13.41% at $376.00, according to market data.
