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MongoDB (MDB) to Buy Cloud Database Service Provider mLab

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MongoDB (MDB - Free Report) is acquiring San Francisco-based cloud database service provider mLab for an undisclosed amount. The deal is expected to be completed in the fourth quarter of fiscal 2019 (ends on Jan 31, 2019).

Notably, MongoDB’s document-based architecture increases developer productivity by making it easy for them to manage data, and rapidly and cost-effectively build, modernize, deploy, and maintain applications. The deal will now help MongoDB develop deeper relationship with developer-centric startup communities, where mLab already has significant penetration.

Currently, mLab has roughly one million hosted databases on its platform, across both free and paid tiers. The company is known for providing exemplary customer support that is expected to benefit MongoDB in attracting new clients.

Further, the acquisition will boost MongoDB’s hosting capabilities. Also, it will now be able to scale Atlas, its managed database-as-a-service (DBaaS) offering, much faster. Atlas enables users to deploy, manage and scale MongoDB on Amazon Web Services (AWS), Microsoft Azure, and Alphabet's (GOOGL - Free Report) Google Cloud Platform in a few clicks or API calls.

Solid Atlas Adoption to Drive Growth

MongoDB shares have returned 129.7% year to date, significantly outperforming the Zacks Internet Software industry’s rally of 8.3%. The surge can be attributed to consistent performance, driven by robust demand for Atlas.

 


 

Notably, MongoDB has beaten the Zacks Consensus Estimate for earnings in all of the trailing four quarters, with a positive average surprise of 7.54%.

In the last reported quarter, MongoDB reported revenues of $57.5 million, up 61% year over year, primarily driven by 63% growth in subscription revenues (92% of revenues). The top-line figure beat the Zacks Consensus Estimate of $52 million.

The company ended second-quarter fiscal 2019 with more than 7,400 customers, up 72% year over year. Atlas revenues grew more than 400% year over year and represented 18% of total revenues. Atlas added approximately 1,000 customers in the quarter.

MongoDB’s focus on strengthening security capabilities of Atlas is expected to rapidly expand enterprise customer base. Features like the enterprise key management allow customers to bring their own keys that infuse confidence among them about the security of their data.

The company expects revenues between $59 million and $60 million for the third quarter, which reflects 45.1% year-over-year growth at mid-point. Apart from solid adoption of Atlas, availability of new products like Stitch and Mobile are expected to drive growth.

Intensifying Competition a Woe

However, intensifying competition from legacy as well as cloud-based database providers is a headwind. Google’s Cloud Firestore NoSQL database (launched in October 2017) and Oracle’s (ORCL - Free Report) initiatives to add new features present significant threat to MongoDB’s growth opportunities.

The intensifying competition is expected to hurt the company’s pricing power, particularly for Atlas, which is a low-margin solution. This can significantly impact profitability.

Zacks Rank & Stock to Consider

MongoDB currently has a Zacks Rank #4 (Sell). Twilio (TWLO - Free Report) is a better-ranked stock in the same industry. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term growth rate for Twilio is currently pegged at 9%.

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