After issuing downbeat FY25 guidance last quarter, conditions worsened for MongoDB (MDB, Financial) in Q1, leading to a lowered outlook for the year. The unstructured database management software provider is grappling with a deteriorating macroeconomic situation, causing its stock to plummet to one-year lows—a more than 50% drop from mid-February 2024 highs.

Several factors are driving today’s negative reaction, but two key developments stand out:

• MongoDB now anticipates a slowdown in consumption growth for its cloud offering, Atlas, despite earlier predictions of stability.
• Its pipeline of multi-year deals within the legacy Enterprise Advanced (EA) offering is lower than expected, leading to a mid-single-digit percentage decline in non-Atlas revenues for FY25.

As a result, MongoDB has reduced its FY25 guidance, now expecting adjusted EPS of $2.15-2.30 and revenues of $1.88-1.90 billion, down from $2.27-2.49 and $1.90-1.93 billion, respectively.

What happened?

MongoDB’s quarterly numbers can fluctuate significantly due to its consumption-based pricing for Atlas. The company experienced broad-based weakness within a short period, affecting customers across various sectors and geographies, reflecting a challenging global economic environment. Additionally, MongoDB had a slow start in acquiring new business.

• Despite these challenges, MongoDB managed to deliver another quarter of top and bottom-line growth, with adjusted EPS of $0.51 and a 22.3% year-over-year revenue increase to $450.56 million. However, Q1 difficulties are expected to impact the rest of the year.

On a positive note, MongoDB’s win and retention rates remained strong in Q1, highlighting the mission-critical nature of its platform. Once customers adopt MongoDB’s software, switching to a competitor is costly. Additionally, the rise of AI is pushing businesses to modernize legacy applications, benefiting MongoDB in the long term.

MongoDB is optimistic about capitalizing on the acceleration in legacy app modernization using AI. Although migrating from a legacy platform is costly and challenging, management believes its offerings and investments will attract hesitant businesses.

• MongoDB signed Accenture (ACN, Financial) as its first global systems integrator for its MongoDB AI Application Program (MAAP), which integrates hyperscalers and Gen AI frameworks.

The rapidly changing economic backdrop has generated considerable selling pressure. While MongoDB’s software maintains a competitive edge in organizing unstructured data, the current cautious buying climate—similar to what Salesforce (CRM, Financial) and UiPath (PATH, Financial) have experienced—poses challenges that may impede a swift recovery.