MongoDB stock sank more than 20% Friday after the data software company reported better-than-expected first quarter results but lowered its sales guidance for the rest of the year. The slump adds to a recent run of struggles for software stocks that were popular AI picks in 2023.
With its first quarter results late Thursday, MongoDB lowered sales guidance for its January-ending fiscal year. The New York-based company now expects sales of $1.89 billion at the midpoint of its range, compared to the $1.915 billion projection the company provided in March.
MongoDB Chief Executive Dev Ittycheria pinned the change on broader economic conditions, which drove "a slower than expected start to the year," he said in a news release. The firm also lowered its full-year adjusted earnings outlook, projecting $2.23 per share at the midpoint of its range, down from $2.38.
Some analysts say the change was especially concerning because MongoDB's initial fiscal-year guidance was already viewed as conservative when the company gave it in March. Now it is cutting expectations further.
"The larger point is the below consensus Q2 guidance and lowered fiscal year guidance, which should destroy any hope that MongoDB's initial fiscal year guidance (given three months ago) was overly conservative," Barclays analyst Raimo Lenschow wrote to clients late Thursday.
On the stock market today, MongoDB stock lost 23.8% to close at 236.06. The decrease was the biggest single-day drop for MongoDB stock since the firm went public in 2017, according to Dow Jones Market Data.
MongoDB Stock: Q1 Results
MongoDB's first quarter results did beat expectations.
The company said it earned an adjusted 51 cents per share on sales of $450.6 million for the April-ending quarter. On average, analysts projected MongoDB would post adjusted earnings of 38 cents per share on sales of $441 million, according to FactSet.
Adjusted earnings fell 9% year over year and revenue increased 22%. MongoDB's Atlas subscription product saw sales jump 32% year over year.
MongoDB, however, is known for easily beating analyst estimates and its own guidance. MongoDB's Q1 sales beat expectations by 2%, the slimmest margin since the company went public, according to Stifel analyst Brad Reback.
"Mongo had a rough start to the year, as the company faced a macro-induced consumption slowdown that was broad-based among customers," Reback added in a client note Friday. He reiterated a buy rating for MongoDB but made a steep price target cut for the stock to 300, from 435.
MongoDB Highlights Software Sell-Off
The slide comes after MongoDB had already lost 7% in Thursday trading. Software stocks sold off on the day, led by Salesforce. Salesforce stock sank after the company posted lower-than-expected revenue for its April quarter.
Similar to Salesforce, MongoDB is a popular pick among analysts to benefit as more companies adopt artificial intelligence tools.
But investor patience is waning. MongoDB stock also tumbled earlier this year when investors were let down by its fourth-quarter earnings report in March. Friday's early slide helped wipe away a significant portion of MongoDB's 108% rally in 2023.
Software stocks rallied last year on the assumption that AI would push enterprises to spend more. But that optimism has been replaced by concerns that companies are instead redirecting existing spending toward AI. UBS analyst Karl Keirstead asked Ittycheria on MongoDB's earnings call Thursday whether that is what's happening for the company.
"Is AI essentially crowding out new business? We definitely think that that's plausible," Ittycheria responded. "We definitely see development teams experimenting on AI projects. The technology is changing very, very quickly. But that being said, we don't see that as a reason for us to not hit our new business targets."
Ittycheria told analysts he is confident in MongoDB's long-term position as more companies launch AI software tools that run on next-generation databases, such as MongoDB's Atlas. But the industry is in a transition phase.
MongoDB Stock: Technical Ratings
Coming into the report, MongoDB stock had an IBD Composite Rating of 70 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, MongoDB's IBD Relative Strength Rating was 19 out of 99.
