A to Z Software and SaaS Operational Benchmarking Series: MongoDB
In this series, I will go through a list of currently public (or to be public and formerly public) software and SaaS companies, and run through a set of operational benchmarks based on publicly available data. Using public information such as SEC filings, press releases, earnings transcripts and investor presentations, I have pieced together a variety of items that are noteworthy to monitor and understand for these companies of varying scale, growth rates and profitability. Given the sheer amount of publicly available data and information circulated over the time horizon considered in this article, I may have missed item(s) worthy of consideration (so please leave me your thoughts!) and will not be adjusting all the historical financials on a pro forma basis for M&A. I have conducted this analysis myself and it expresses my own opinions and work product, as I have no business relationship with the company mentioned in this article, nor should anyone use this article to make an investment decision. Please do your own due diligence and do not rely on this information herein.
Introduction
The next company covered in the A to Z Software and SaaS Operational Benchmarking Series is MongoDB.
MongoDB has been a public company since October 2017, and has a wealth of filings available for us to scour and review.
Here is an excerpt describing the business from the company’s filings: MongoDB is the developer data platform company whose mission is to empower developers to create, transform, and disrupt industries by unleashing the power of software and data. The foundation of our offering is the world’s leading, modern general purpose database. Organizations can deploy our database at scale in the cloud, on-premises, or in a hybrid environment. Built on our unique document-based architecture, our database is designed to meet the needs of organizations for performance, scalability, flexibility and reliability while maintaining the strengths of relational databases.
The company positions its Developer Data Platform as designed to allow customers to address a broad set of use cases across a broad range of deployment models on one deployment model. This is shown in detail from a recent product update presentation from the company below:
The company has generated over $1.9 billion in total revenue over the last twelve months ended October 31, 2024 and has over 52,600 customers, which results in an average LTM revenue per customer of roughly $36.4K.
MongoDB provides a solid breakout of additional metrics on its financial and operational profile, which we will breakdown in later sections of this article.
I will walk through MongoDB’s key operational metrics across the company’s financial statements and key trends, and have compiled scorecards to compare the company to a variety of software / SaaS company benchmarks. This article serves as another example on how to evaluate a company’s financial and operational profile through a detailed assessment of available data and metrics. This can help business owners and investors apply similar approaches and analyses for other companies of interest.
For those who are not interested in going through the entire article and want a brief snapshot of the company’s key metrics as of its latest publicly available quarter (three months ended October 31, 2024), here is a compilation of summary charts:
Revenue Profile
MongoDB has historically been a strong self-service business that has generated its customer growth and acquisition from its MongoDB Atlas product, which is billed on a monthly basis in arrears based on usage. More recently, the company has employed a direct sales GTM approach that drives new MongoDB Atlas subscriptions and customers, which typically sign annual contracts and either pay in advance or pay similarly to self-service customers in arrears on a monthly basis.
Beyond their MongoDB Atlas product, the company sells MongoDB Enterprise Advanced that is deployed in the cloud, on-premises, or in a hybrid environment. These subscriptions are sold by the go-to-market teams with field and inside sales teams, as well as indirect channel partners.
The company has over 52,600 customers, over 51,100 customers on MongoDB Atlas, over 7,400 customers that have been generated through direct sales, and as of October 31, 2024, have 2,314 customers that spend more than $100K ARR with the company.
MongoDB generates the majority of its revenue from its subscriptions, which leads to a 97% recurring revenue base that is a mixture of term licenses and hosted-as-a-service solutions. The mixture of subscriptions and term licenses include technical support and access to new software versions on when it is available.
The majority of its subscription contracts are one year in duration. Occasionally, the company enters into multi-year subscriptions, the company is typically invoiced on an annual basis or paid upfront with the contracts are generally non-cancelable and non-refundable.
MongoDB’s remaining 3% of total revenue comes from services, which is made up of consulting and training services and is recognized over the period of delivery of the applicable services.
Here is the view of the MongoDB’s quarterly revenue details and quarterly YoY revenue growth rates in its revenue profile, as well as its revenue segmentation and mix by geography:
From an annual standpoint, here is a view of MongoDB’s revenue by type and growth rates, along with its overall revenue mix by subscription vs. services:
As of the last fiscal year filing in January 31, 2024, the company has over 2,338 team members in the sales and marketing organization. The company has team members across sales development, inside sales, field sales, sales engineering, and various marketing departments.
MongoDB employs a sales focus on enterprises that invest more heavily in software application development and deployment. The company plans to continue to invest in direct sales to grow its larger enterprise subscription base, both domestically and internationally.
The go-to-market model is focused on cultivating relationships with developers through continued investment in and growth of various channels, such as MongoDB Advocacy Hub, User Groups and MongoDB University.
Above that, MongoDB has Community Server and MongoDB Atlas free tier offerings, which provides developers to experiment and use their platform and create a self-service motion to drive adoption and eventual expansion as the customer database needs grow.
According to the disclosed data I was able to retrieve and review, the company has made 3 acquisitions. The company discloses data on some of these transactions within its public filings, but I have not made explicit adjustments for any pro-forma details across the financial information I have provided in this article.
As is standard when assessing software companies, it is important to understand the impact of seasonality across its revenue and financial profile.
In typical scenarios for numerous software / SaaS companies, we see a revenue skew towards the back-half of the year, especially the fourth quarter. This can be a result of numerous factors, most notably customers releasing budgeted spend (planned or excess amounts) to invest in new software purchases.
The company has a January 31 fiscal year end, so we are generally utilizing calendar quarters ending April (CQ1), July (CQ2), October (CQ3), and January (CQ4) throughout this analysis.
As is apparent based on the seasonality below, there is no pattern of significant seasonality within the company’s revenue streams.
The company has seen some recent slowdown and rationalization in its overall growth in revenue, evident most specifically within its subscription revenue line item. Despite that, the business still has done a solid job of scaling and continue to increase its span and customer acquisition, and wallet share expansion based on the growth in their total customers that spend over $100K in ARR with the company.
As a result, MongoDB is classified as a mid-growth, scaled company because it generates revenue growth between 20% and 40% and has revenue above $100 million a year.
The below graphs and the scorecard chart summarize the company’s revenue metrics and performance history over a variety of benchmarks for typical software / SaaS companies:
Expense Profile
Before we dig into MongoDB’s costs and expense profile, here is a typical composition of expense categories for most software and SaaS companies:
- Cost of Sales / Cost of Goods Sold: costs to deliver, maintain, service and host product / services and support existing customers on platform
- Sales & Marketing: costs to directly / indirectly sell and market product / services
- Research & Development: costs to develop new products / services (incremental of the maintenance of existing product / services, which typically falls under COS / COGS)
- General & Administrative: costs that do not fall under other buckets; typically include: legal, finance, admin, executive, rent and other general corporate costs
In addition to these typical expense categorizations, companies may choose to break out cost of revenues by each individual revenue stream, which MongoDB does in their cost of revenue profile like they do in their revenue.
At the end of this section, I have included benchmarks to compare against as well, serving as useful rules of thumb.
Here are quarterly summaries of MongoDB’s expenses as a % of revenue over time:
MongoDB’s subscription costs of revenue consist primarily of third-party cloud infrastructure costs for hosted-as-a-service solutions deployed with customers. Over time, as the business has scaled and grown, the cost of revenue as a % of subscription revenue has generally gone down, but has more recently settled around 21/22% levels.
On the other hand, the company’s poor professional services cost model is much higher than the revenue it generates in that segment, leading to a negative gross profit margin / greater than 100% cost of revenue profile as a % of its professional revenue. The costs within this category are generally personnel costs for the employees that manage professional services contracts.
Beyond its cost of revenue categories, MongoDB invests a healthy amount of its total revenue (between 45–48%) on its sales and marketing functions, which primarily consist of all of the activities and personnel in the go-to-market function that drive growth. Research and development expenses as a % of revenue have recently gone down to / below 30%, which shows the company at scale has been able to drive down its product and engineering costs. This may eventually change to deliver more innovation and growth to its product portfolio, especially for a business that has historically relied on its product’s self-service driving initial adoption and usage.
The below shows the company’s expense profile scorecard:
The benchmarks shown above are representative of what similarly sized software and SaaS companies should attempt to attain based on my experience in the industry and working with clients. A note of caution / disclosure — these benchmarks are not applicable to every single software and SaaS company, but illustrative ranges that business owners and investors can use as rules of thumb.
Profitability Profile
Generally speaking, the three selected profit metrics that I focus on in this section are: gross profit, EBITDA and operating cash. Primary reasons on why each of these profitability metrics are important to consider for all software and SaaS businesses are detailed here:
- Gross Profit: conveys a company’s profitability considering departments and business areas such as hosting, IT operations and customer support
- EBITDA: conveys how profitable a business is across all major functions and departments, including the impact of operating expenses (S&M, R&D and G&A)
- Operating Cash: conveys how profitable a company is on an operating cash basis (i.e. how effective a company is converting EBITDA into cash)
MongoDB does not explicitly disclose EBITDA, but provide all of the components for us to calculate it.
Let’s first dig into MongoDB’s gross profit and gross profit margins on a quarterly and annual basis and by subscription and professional services segments:
Despite having poor, negative gross profit and margins within its professional services segment that represents 3% of its total revenue, the company still maintains a stable and solid blended total gross profit margin between 73–75%. For a business that sells hosted solutions that are reliant on hosting services costs as a matter of scale, this is solid.
Over time, one would like to see the company eventually turning the tide on its professional services revenue segment to either find ways to better optimize the margin profile and drive improvements to its delivery models — one way many software companies have done this is by moving the professional services implementations and deployments to external system integration partners.
Beyond gross profit, we can dig into the company’s EBITDA and EBITDA margin profile to get a sense of its operating profitability over time.
Please note that I have not made any other adjustments (e.g. no add-backs for any one-time, non-recurring items like litigation, M&A expenses, etc.) to these figures beyond adding back depreciation and amortization to the company’s disclosed operating income figures, along with stock-based compensation given that many software and SaaS companies do so in their non-GAAP disclosures.
Here is a view of MongoDB’s EBITDA, again on a quarterly and annual basis:
With the burden of stock-based compensation, MongoDB is not a profitable business on an EBITDA basis. When you remove the cost impact of stock-based compensation through the add-back of these figures, MongoDB has been successfully able to scale up its EBITDA and EBITDA margins as the revenue growth of the business has decelerated.
Finally, here is a view of operating cash. This takes EBITDA and includes the impact of capital expenditures and capitalized software, as well as the impact of change in net working capital.
As I have done in previous articles in this series, I am calculating operating cash as follows:
EBITDA less capital expenditures and capitalized software less the period-over-period change in net working capital (net working capital is defined as current assets (excluding cash) minus current liabilities)
Here are MongoDB’s operating cash metrics over time:
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As expected, the company has some variability / swings from period-to-period due to its working capital, but generally speaking, the operating cash profile mirrors the EBITDA profile.
Again, the caveat with this figures is that this removes the impact of stock-based compensation (aka — stock-based compensation is added back to EBITDA). While I do not necessarily agree with this approach, it helps us get comparability and as close to parity between software / SaaS companies in the public market.
In sum, here is the company’s profitability scorecard across a variety of benchmarks:
Balance Sheet and Capex
Detailed views and analyses into a company’s balance sheet and capital spending trends can provide insight into a company’s working capital trends (e.g. is there any seasonality or nuances within accounts?) and cash flow generation (e.g. how a company bills and collects on customer contracts; what the company spends on capital outlays).
In this section, I will go into MongoDB’s cash and cash equivalents balance, working capital accounts (excluding cash), and capital spending trends.
The below shows the company’s cash and cash equivalents balance trending over time:
Beyond cash, it is also essential to assess a company’s working capital to understand how operating cash flow is generated over time. I have calculated working capital for MongoDB based largely on the following current asset and current liability accounts:
- Current Assets: Accounts Receivable, Deferred Commissions, Prepaid Expenses & Other Current Assets
- Current Liabilities: Accounts Payable, Accrued Expenses & Other Current Liabilities, Deferred Revenue (current)
For a typical software and SaaS business, we would expect a relatively simple balance sheet with a few notable trends: 1) potential seasonality with accounts receivable, accounts payable, and deferred revenue in line with a company’s collection and payable cycles; and 2) negative working capital that continues to become increasingly negative over time as the company grows, sells more subscriptions, and has an increase in deferred revenue.
The below charts highlight the working capital and net working capital trends of MongoDB:
Here is a view of the company’s Accounts Receivable, Accrued Expenses and Other Current Liabilities, and total Deferred Revenue balances, broken out by current and non-current:
Beyond its balance sheet, things to analyze and look for are within capital expenditures and capitalized software expenses.
MongoDB does not capitalize software development costs.
In its LTM ended October 2024 financials, the company had capital expenditures of ~0.3% of revenue, which is extremely immaterial, even for a scaled software business.
For software / SaaS businesses, capital expenditures are typically limited to investment in office space, equipment such as office items and computers and other tech-related items such as data centers, IT systems and infrastructure used for hosting.
A good benchmark / rule of thumb for the capital expenditures as a % revenue ratio is between 5% to 15% of revenue. MongoDB is below the range for capital spending.
Here are the views of MongoDB’s capital spending ratios:
Company-Specific KPIs and Other KPIs
MongoDB produces numerous company-specific KPIs within its quarterly and annual filings, press releases, and earnings presentations. These include the following: total customers, direct sales customers, MongoDB Atlas customers, customers with >$100K ARR, MongoDB Enterprise Advanced % of Subscription Revenue, Direct Sales Customers Revenue % of Subscription Revenue, and free cash flow.
Additionally, the company started disclosing more details about its net ARR expansion rate, but we do not have enough history to show a trend line on that metric.
Here are the views of the trended supplemental company metrics over time:
On the net ARR expansion rate, the company defines it as follows:
We also examine the rate at which our customers increase their spend with us, which we call net ARR expansion rate. We calculate net ARR expansion rate by dividing the ARR at the close of a given period (the “measurement period”), from customers who were also customers at the close of the same period in the prior year (the “base period”), by the ARR from all customers at the close of the base period, including those who churned or reduced their subscriptions. For Direct Sales Customers included in the base period, measurement period or both such periods that were self-serve customers in any such period, we also include annualized MRR from those customers in the calculation of the net ARR expansion rate.
These calculations can sometimes be opaque and vary, so it is good to not put too much emphasis on these ratios alone without additional context and details about the company’s profile. Nevertheless, we have to take what management and companies provide us.
Based on my experience with prior clients, software and SaaS companies that disclose net dollar retention rates above the 105%-110% range are impressive.
The company most recently disclosed a net ARR expansion rate of 120% as of its October 31, 2024 filing. Prior to that, the company had disclosed that this rate was at / above 120% consistently, with the exception of the figure reported in the July 31, 2024 filing which was at 119%. Unfortunately, we do not have a ton of quantitative disclosure here on the history to provide, but still paints a solid picture against the 105–110% benchmark for this metric.
With respect to other operational KPIs we typically like to assess and understand in software and SaaS companies, MongoDB provides its periodic stock-based compensation, full-time employee counts, average revenue per employee, and CEO compensation figures.
These additional operational KPIs and trends are shown in the graphs below:
Another key metric we like to assess is customer acquisition cost (CAC) ratio. For MongoDB, I have calculated its CAC ratio over time using the company’s total GAAP sales & marketing spend, its subscription revenue, and LTM subscription gross profit margin.
For reference, here are the detailed breakdowns of the calculations I have used for CAC ratio:
Without gross margin: (LTM ended Current Quarter Sales & Marketing Expense) / ((Sum of the company’s Subscription Revenue in Current Quarter x 4) — (Sum of the company’s Subscription Revenue in Last Year’s Comparable Quarter x 4))
With gross margin: (LTM ended Current Quarter Sales & Marketing Expense) / ((Sum of the company’s Subscription Revenue in Current Quarter x 4) — (Sum of the company’s Subscription Revenue in Last Year’s Comparable Quarter x 4) x LTM Subscription Revenue GM %)
Here is what MongoDB’s CAC ratio looks like over time with and without the impact of gross margin:
For reference, a useful benchmark for software and SaaS CAC ratios is between $1 to $3. We can see that MongoDB has consistently been below or within the benchmark reference range for both versions of the calculation.
As the company’s revenue growth has slowed down since 2022, the CAC ratio has started to increase, with a notable big bump in the most recent periods. This is attributable to the run-rate growth on subscription decreasing, but a recent ramp of its total sales and marketing expenses. These sales and marketing expenses have helped the company rebound a bit in its most recent quarterly disclosed YoY growth rate, but the investments have yet to pay dividends over a sustained period. It will be worth monitoring to see if the company can drive incremental growth with these investments.
Finally, one final metric we assess for software and SaaS companies is the Rule of 40. The Rule of 40 represents the sum of a company’s revenue growth rate and its EBITDA margin in each period.
This metric has become commonplace (and more important in recent years) as an effective measurement of a company’s health and value, as it blends growth and profitability into one metric for business owners and investors to monitor.
Although this metric is certainly not a panacea for all financial reporting concerns, it is indeed a useful tool to convey how balanced a company is in its growth and profitability.
Here are the quarterly and annual views of MongoDB’s Rule of 40 metric over time:
And here is a scorecard of MongoDB’s CAC ratio and Rule of 40 metric. It is noted that the company has lost some steam in these categories, and each of these metrics are either below / above the noted benchmarks. Given growth has declined over time, this is not really surprising, but it is still worth monitoring these benchmarks and the performance of MongoDB against these into the future:
Concluding Thoughts and Summary
This detailed assessment provides useful operational benchmarks for MongoDB that can be used as a basis to analyze other software and SaaS companies, both public and private.
Please do your own due diligence and do not rely on the charts, figures, and details shown here to make a decision, as these are illustrations based on the company’s filing and are not my responsibility for accuracy and are not a recommendation to buy or sell the stock.
With further compilation of these metrics and averages from other companies covered in this series I have created, there will be an increase in the availability and precision of the operational benchmarks used as reference points. This will provide business owners and investors with incremental detail to be used in their financial planning, reporting, and analysis of companies.
And of course, these can be used as a baseline to have me help you all out in your own private businesses, so give me a shout if you are interested.
To learn more about this article and gain other valuable insight into your business, please visit www.rtdinsights.com or contact me directly at rzacharia@rtdinsights.com.