Even fast-growing companies must climb the wall of worry. MongoDB (NASDAQ:MDB), whose open-source database technology, based on the concept of documents, is increasingly popular in clouds, is such a company.
Mongo has been delivering top-line growth of over 50% each year since before going public in 2017 and is expected to keep up the pace when it reports its fourth-quarter results Mar. 13.
Hitting the mark of $73.7 million in revenue would give it over $240 million for the year … 50% ahead of last year’s $154 million. This has earned MDB stock a market cap of $5.2 billion, up a fat 218% from its IPO price.
But news events have kept the rocket ship from going straight up, and the latest news may drop it from the sky.
Amazon After You
The news is that Amazon (NASDAQ:AMZN), which brought out a MongoDB competitor called DocumentDB a few months ago, may be getting all the business of Lyft, the ride-hailing service due to come public later this year.
It’s just one account, but it’s a big one, and it caused one analyst to throw a sell rating on MDB stock, dropping his price target to $63 per share. At the time MongoDB was trading at $106. It opened Feb. 27 at $98.
MongoDB had previously taken a hit in January, when Amazon announced DocumentDB, and in the fall, when the company changed its open source license. That was because some cloud providers were downloading the software and offering their own versions as a service, without contributing code back.
It was feared that move, to what MongoDB calls the Service-Side Public License (SSPL), might lead developers to see it as abandoning its open source roots. MongoDB had previously been licensed under the AGPL, an online version of the standard GPL 3.0 license. By the time October results came out, showing growth had continued, MongoDB stock was already marching upward again.
The problem for bulls is the current price of MDB stock. At $5.2 billion, you’re paying over 20 times anticipated fiscal 2019 revenue. Even if MongoDB hit $400 million in fiscal 2020 revenue, its current valuation is 13 times that. Don’t even mention earnings because there aren’t any. In a fast-growth company there shouldn’t be, as investing and financing cash flows keep growth humming.
Open Source vs. the Cloud
The real fear isn’t so much Amazon as all the other cloud service providers. Open source companies like MongoDB get by on either support contracts or by licensing commercial versions. Clouds that re-sell online versions of open source products, but don’t contribute anything back, are a serious concern.
As a result, vendors like privately-held Redis Labs went to a more controversial licensing scheme dubbed Commons Clause, prohibiting re-sale of the software as a service. Critics said this turns open source software into proprietary software, and in February Redis released an explicitly proprietary license.
Mongo’s new license demands the cloud providers contribute back the Service Source Code used to make their versions available online back to the community. The question is whether that will satisfy both the clouds that are its customers and the open source advocates that are its contributors.
The Bottom Line on MDB Stock
The best way to handle the contradiction between the open source ethos and the cloud imperative is to do what Red Hat (NYSE:RHT) did and sell out to a cloud provider like International Business Machines (NYSE:IBM). But that exit isn’t available to everyone.
MongoDB stock investors also won’t get a chance to adjust if MDB’s new license continues to anger cloud providers like Amazon, cloud customers or open source contributors. The valuation is extremely high, and there’s no net.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.