MongoDB cut its second quarter and fiscal 2025 outlook as the company said it saw slower than expected demand for Atlas consumption and new workloads.
The company's outlook came amid a solid first quarter. The company reported a net loss of $80.6 million, or $1.10 a share, on revenue of $450.6 million, up 22% from a year ago. Non-GAAP earnings in the first quarter were 51 cents a share.
MongoDB was expected to report non-GAAP earnings of 37 cents a share on revenue of $439.91 million.
The problem for MongoDB is that the first quarter growth for its Atlas platform was slower than expected even though it was up 32% from a year ago. In addition, MongoDB's outlook was light in the previous quarter too.
CEO Dev Ittycheria said, "we had a slower than expected start to the year for both Atlas consumption growth and new workload wins, which will have a downstream impact for the remainder of fiscal 2025." He elaborated on the earnings call:
"Atlas consumption growth was below our expectations in the first quarter. We saw less seasonal improvement than expected, and this dynamic was true with customers across tenure, industry, size, and geography. We believe this indicates a more challenging macro environment than expected at the beginning of the year. A new dynamic we saw in Q1 was the growth rate of more recently acquired workloads started to slow down earlier than expected. While the macro environment had an impact, we also believe this is probably due to the go-to-market changes we instituted last year."
Ittycheria said MongoDB still had a large opportunity to gain share and become a standard and that it will be "a substantial beneficiary of this next wave of application development" revolving around AI.
As for the outlook, MongoDB projected second quarter revenue between $460 million and $464 million with non-GAAP earnings of 46 cents a share to 49 cents a share. Analysts were modeling revenue of $471.54 million with non-GAAP earnings of 57 cents a share.
Fiscal 2025 revenue will be between $1.88 billion to $1.90 billion with non-GAAP earnings of $2.15 a share to $2.30 a share. Wall Street expected fiscal year revenue of $1.94 billion with non-GAAP earnings of $2.43 a share.
Earlier this month, MongoDB outlined its product and business strategy. The general idea is that MongoDB aims to become a standard and a platform for AI application development. That vision is on track, but enterprises are moving slower than anticipated.
MongoDB outlined a few areas it will fix.
- The company is focusing on workload acquisition across new and existing customers.
- MongoDB will increase investments in its enterprise channel.
- It will focus on large accounts that drive the most return.
- Build out the MongoDB ecosystem. The company landed Accenture as its first system integrator to join the MongoDB AI Application Program.
- MongoDB will invest in the high-end in the market and said it was optimistic about companies accelerating legacy app modernization with AI. "We recently completed the first two Gen.AI powered modernization pilots, demonstrating we can use AI to meaningfully reduce the time, cost, and risk of modernizing legacy relational applications," said Ittycheria. "We see that AI can significantly help with analyzing existing code, converting existing code, and building unit and functional tests. Based on our results from our early pilots, we believe that we may be able to reduce the effort needed for app modernization by approximately 50%. We have a growing list of customers across different industries and geos who want to participate in this program."
Ittycheria was asked about the broader software slowdown across categories. He said:
"I have been through multiple cycles. With every cycle, when you go back all the way to the mainframe, to client server, to the internet, and now cloud and mobile, the cost of building applications went down. You saw an explosion of more apps and consequently more data. With AI, you're going to see a step-fold increase in the number of apps being built to run businesses. But that's going to take some time. As with any new adoption cycle, the adoption happens to what people commonly refer to as S-curves. And I think we're going through one of those S-curves when I see the macro environment. Partly it's related to this technology transition, but partly it's also related that the macro environment is not great.
What we talk about in macro, remember, ultimately we're a database or a data platform and the usage of our platform is directly or very tightly correlated to the performance of the end-customer's business. If they're selling 100 widgets a week and all of a sudden now they're selling 80 widgets a week, that will mean that they're using the database less intensely. So when we see broad-based slowdown across different customer cohorts of different sizes, across different industries and across different geos, that strikes us as pretty much a macro issue.
We have close to 50,000 customers, so we have a pretty good feel for what's happening right now. And that's why we feel that there's definitely a macro element to it. With regards to AI essentially crowding out new business, we definitely think that that's plausible."
