MongoDB Inc (NASDAQ: MDB) jumped 20% premarket this morning off the back of Q3 results announced. The essential message from MongoDB is that it beat most of the expectations of the market – revenue, earnings, growth rate, all above analyst average predictions.
The revenue and earnings beat was good but not a blowout. For Q3 Non-GAAP EPS of -$0.11, a forecast beat of $0.27, is good but not alarmingly so. GAAP EPS of -$1.22 beating estimates by $0.13 is nice too. Revenue of $226.89M (+50.5% Y/Y) up on analyst predictions by 10%, or $21 million is again good. These might not normally be numbers that produce a 20% bounce in the stock price as they have at MongoDB.
However, a slightly longer look shows that over the past week, immediately before these results were announced, the MongoDB stock price had dropped by about 20% and perhaps 25% over the past month. This tells us more of the underlying story.
There has been some concern about those very results just announced. When they’re to be announced is known in advance, but not what they will be. So, as concern grew – or even started – that they might not be all that then the stock price starts to fall. Analyst expectations will also change. Sure, the claim is that they all calculate directly from nothing but known facts but there’s always still that finger in the air part of the process. If the general view is that hopes will not be met then analyst estimations creep down.
So, the price falls 25 to 20% in advance of the results announcement just on general uncomfortableness about how those results might disappoint a little or more. The results then actually come in for MongoDB and the stock price recovers. They’re better than the latest analyst expectations, they’re possibly even better than the predictions when people started worrying a month back.
That isn’t the end of the story though. Why were observers beginning to worry that month back? Something made people think that results weren’t going to be up to expectations, that’s what started the stock price slide.
The future stock price is going to be driven by the now reset expectations. Which could go one of two ways. One is that the original concerns are still out there – increased competition in the database market perhaps – and so that these earnings were a beat doesn’t mean that the full year and subsequent ones will be. The other is that the concerns were misplaced. MongoDB has now shown that what was worrying isn’t in fact a thing. They’ve beaten expectations and are going to carry on doing so from this new and higher-than-expected starting point.
If it’s the second explanation then we might expect an actual rerating of the stock rather than just this climb back to where the price was. If it’s the first explanation then this rise today might just be the precursor to continued decline.
That is, the earnings beat is great, but what matters to the longer-term price is the combination of that with the previous stock price decline at MongoDB.
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