MongoDB IPO | S-1 Breakdown

Alex Clayton
Sep 22, 2017 · 7 min read

Company and Product Summary

MongoDB, a leading database software vendor, just filed for a $100M IPO with Morgan Stanley leading the offering. They plan to trade under the ticker “MDB” on the NASDAQ. MongoDB was founded in 2007 (initially named 10Gen) and most recently valued at $1.6B in a 2015 financing. MongoDB is an open source database software company — with the explosion of data within enterprises, relational databases were not built to support the volume of data, lack of data structure and the rapid pace of development needed in modern software applications. MongoDB has built a flexible, scalable, and enterprise-grade document database that combines the best of both relational and non-relational database features. Many applications today are using a mix of unstructured and structured data, and MongoDB’s database makes it easier for developers to build and deploy applications from any type of data or data structure. Their open source product, Community Server, is a free-to-download or freemium version that has been downloaded over 30M times since Feb-2009 and over 10M times in the past 12 months. MongoDB is growing very fast — they did $91.2M of subscription revenue in FY’17 (January fiscal end), up from $58.6M in FY’16, a 56% increase YoY. They ended last quarter at $130M of ARR (annual recurring revenue), up from $85M from the same quarter last year, a 54% increase YoY. MongoDB also has significant operating losses. In FY’17, their GAAP operating loss was $(85.9)M, an (85)% margin. MongoDB has over 4,300 total customers across 85 countries and a wide range of industries; they include over half of the Global Fortune 100 companies. They currently have 820 FTEs and are headquartered in New York City, NY.

Most of MongoDB’s revenue comes from their core commercial offering, MongoDB Enterprise Advanced. Their newer product, MongoDB Atlas, represents a small amount. The company has massive adoption in their open source product that helps seed the market for commercial deals. MongoDB Enterprise Advanced can be run in the cloud, on-premise or in hybrid environments, and includes their proprietary database server, enterprise management capabilities, GUI, analytics integrations, and technical support. MongoDB Enterprise Advanced represents ~70% of total subscription revenue. In June of 2016, MongoDB released “Atlas”, which is a hosted DBaaS (database-as-a-service) offering that is run in the public cloud (AWS, Google Cloud Platform, or Microsoft Azure). MongoDB charges customers on a monthly basis for this product and it’s essentially their open source or Community Version along with infrastructure and management, removing the complexity of operating the databases’ underlying infrastructure. It represented only 5% of total revenue for the past 6 months but they have over 1,900 customers in this tier.

MongoDB sells direct and through partners (over 1K today), and generates revenue primarily through subscription licenses which are priced on a per server basis. Most contracts are 1 year in length. Given their open source model, much of their sales effort is around driving awareness and adoption of their Community Version and converting those customers to paid. Software subscriptions account for 90%+ of total revenue, with the remaining from professional services. The company has over 4,300 customers, implying an average subscription ACV of $30.3K. MongoDB also has 296 customers (roughly 7% of total customers) paying them over $100K in ACV. MongoDB, like many other enterprise software companies, has high net dollar expansion— 128% last quarter and over 120% for the past 10 quarters. No customer represented more than 5% of revenue in FY’17.

Here is an illustration of their product platform from the S-1:

Market Opportunity

MongoDB believes they can address the $44.6B database market (IDC), which is expected to reach $61.3B by 2020, growing at an 8% CAGR. This refers to the very broad structured data management software market. They also believe the move to the cloud will accelerate adoption of their database tech. In 2016, 92% of all organizations were evaluating, deploying or fully embracing the cloud (IDC).

Competition

MongoDB competes with legacy relational database software vendors (IBM, Oracle, and Microsoft), non-relational database software vendors (Couchbase, MarkLogic), and some cloud infrastructure providers like AWS (Amazon Web Services), GCP (Google Cloud Platform), and Microsoft Azure, which offer some database tooling. MongoDB is considered the leader among NoSQL database vendors.

Investors

MongoDB has raised over $300M from investors including Sequoia, Flybridge, Union Square, NEA, Dell, Altimeter, Goldman Sachs, Fidelity, Intel, Salesforce Ventures, T. Rowe, In-Q-Tel and Red Hat. 5%+ pre-offering VC shareholders include Sequoia (16.9%), Flybridge (11.6%), Union Square (9.7%) and NEA (7.2%). CEO, Dev Ittycheria, is at a 6.3% pre-offering ownership stake.

Financials and Metrics

MongoDB is growing very fast but also losing a lot of money. They did $101.4M in FY’17, up 55% YoY. GAAP net loss was $(86.7)M during the same time period, an (86)% net loss margin. While the company has roots in open source, they have a subscription software model so I looked sales efficiency — they averaged a 21-month payback period over the past 9 quarters. They disclosed last quarter’s net dollar expansion rate, which was 128%, and the company says it was over 120% for the last 10 quarters (although they don’t disclose exact numbers). Moreover, while not apples-to-apples since many of their open source users would never convert to enterprise deals, they are only 0.01% penetrated based on their 4,300+ customers and 30M open source downloads. I think a big part of their story will be their ability to convert more open source users to paid deals. Atlas seems like a big part of this strategy given it is a lower-end product offering. Outputs of other financials and metrics are below:

Annual P&L (000's)

Source: S-1. Note: All metrics GAAP except for Implied Ending ARR.

Quarterly Subscription Revenue ($M)

Implied Ending ARR Over Past 10 Quarters ($M)

MongoDB is growing their ARR quickly (you can see other software IPO ARR ramps here). Over the past year, they added over $45M of net new ARR.

Note: Implied ending ARR calculated by multiplying quarterly subscription revenue by four.

Average Subscription ACV (annual contract value)

MongoDB doesn’t disclose their customers for every quarter, but below are the subscription ACVs where they did disclose customer count. It has ranged between $30–40K over the past 7 quarters. I would imagine Atlas, which is a newer and their low-end product offering, is bringing the average down.

Note: Calculated by dividing implied ARR / # of customers

GAAP Operating Margin

Cohort Analysis

MongoDB does disclose detail around their cohorts. Given customers increase their spend (on average) with MongoDB every year, they see continued expansion in cohorts. For example, for the FY’13 cohort of customers, they had an initial ARR of $5.3M, which increased to $22.1M by FY’17, an increase of 4.1x. Moreover, as of Jan-17, MongoDB’s ARR from their top 25 customers who became customers prior to FY’17 had increased their spend by 12.3x on average compared to their initial buy — very impressive. All of those were over $500K in ARR too. Below is a graphic of their “Direct Customer Cohort Analysis”:

Source: S-1

Contribution Analysis

MongoDB also discloses contribution margins for one of their customer cohorts. Given they are losing a lot of money, the company wants to show that their investments in growth will pay off — they certainly do for the FY’15 cohort which has become very profitable over the past 3 years. In FY’15 this cohort was at a $(12.8)M contribution margin, or (111)%, and by FY’17 it generated a contribution margin of $11.7M, or 60%. See the graphic below which shows the FY’15 cohort over time:

Annual Cash Flows (000's)

Quarterly P&L / Metrics (000's)

Open Source Download Traction (millions)

Valuation

I think MongoDB will be valued like other high-growth SaaS/cloud businesses, which is usually on a forward revenue multiple. Given we’re halfway through their fiscal year, I used an NTM (next-twelve-months) number for valuation ranges. The simple math below shows implied valuations at various growth rates. The company did $124M in LTM (last-twelve-months) revenue. For context, they grew last quarter 51% YoY.


MongoDB is the second open source company to go public this year after Cloudera. I expect more over the coming years as open source software continues to proliferate within enterprises — there are millions of developers contributing to open source projects every day. MongoDB’s database technology is enabling developers to build faster and better applications, and there are many trends in their favor. I would expect a successful offering and continued success for the business. Congrats to the team.

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Alex Clayton

Written by

Software investor at Spark Capital

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