MongoDB CEO Dev Ittycheria on Q2 results: The opportunity in front of us is massive

Check out shares of MongoDB this morning, up about 30% right now. The stock soaring after the document database company reported stronger than expected second quarter earnings, raised its full year outlook. Joining us now for an exclusive interview is Dev Ittycheria, MongoDB president and CEO. Thank you for being here, Dev.

That smile on his face, bigger than on the photo.

Morning.

Hold on.

Before we go, I just want to know, last night, You put out these numbers. Was there like any betting pool among your funny— you asked your crew about what— how the market was going to react?

It's funny you ask. We have a group of people, you know, including our CFO and a bunch of other people helping us prepare for earnings. And we do have an over-under. And I would tell you that my, my prediction was way under the current—

was it like a standard deviation? Like how many standard deviations from the normal?

Pretty close. I mean, some other people thought the stock would rip, but I was— I've been a little guarded.

I hope your CFO was the most guarded, right?

He was pretty guarded.

Okay. Okay.

So true to form for a CFO.

Let's talk about the quarter and what's creating such a huge performance this morning. What was the biggest driver of acceleration in Q2? You added 5,000 new customers. You bumped up guidance. You expanded operating margins. So a lot of good things to point to here. But kind of if we were to take a step back and talk about what was contributing to all of these tailwinds, what would it be?

So last year we decided to put more of our sales resources upmarket at the high end. So we have almost 60,000 customers and this spanned from early-stage companies to the largest companies in the world. In fact, 75% of the Fortune 100 are customers of MongoDB. We decided to move more resources upmarket and better serve the small and medium-sized market through our self-serve channel. And that's really paying dividends. So that move, the workloads we started acquiring last year, are really starting to grow meaningfully and grow faster than we had expected, which is driving Atlas's growth. Atlas grew 29% year over year. It's not that that business is approaching $2 billion in revenue. There's not many cloud businesses that are growing that fast at that scale. The second thing is you mentioned customer acquisition. We've acquired 5,000 customers in the first half of the year. It's the most customers we've ever acquired in the history of the company. And we think that that's a good sign of future growth because A lot of these companies are native companies who are coming to MongoDB to run their business.

Who are you taking share from?

It's a good question. This is a big market. And so there's not a winner-take-all market. So even in our largest companies where people are spending 7, 8 figures with us, there's still tons of other technologies that customers are using. I just met with 2 financial services leaders yesterday before earnings, and they're very happy with MongoDB, but they have a bunch of other stuff. This market is roughly a $100 billion market and we technically have 2% share. If you get 5% share, we're a $5 billion revenue company. So the opportunity in front of us is massive.

So you mentioned AI-native companies were a big composition of the customers that you added here. Can you give us a sense of the pipeline? And I ask this in the context of over the last week or two, we've seen kind of this, this reckoning, some questions around AI spending. Sam Altman saying investors as a whole are overexcited about AI. Does your pipeline reflect some of those concerns about overspending? Or is it the opposite?

So it's interesting you ask that question. So for the last 2 years, I've always said people tend to overestimate the impact of a technology in the short term and underestimate in the long term. And a lot of the investors thought I was being very bearish and maybe I was more signaling about the problems in our own business versus what's happening in the market. And it's actually playing out. Enterprise adoption of AI is still quite tepid. It's all about end-user productivity, code generation tools, you know, business users using document summarization, chatbots, data extraction. But when you ask a CIO or senior technology leaders, is AI fundamentally transforming your business? The short answer is no. Now, it will get there, but people are moving very cautiously. One, they want to guarantee the reliability. This thing called hallucinations, people are very nervous about, especially a financial services customer or healthcare customer. 2, they want to ensure security. They want to make sure these systems are highly secure. And 3, they want to make sure it's also cost effective because there's the ROI there in terms of focusing on, you know, automating certain tasks. Now, this— people are starting to see— be a little bit more aggressive. You start to see deployments of agents to automate back office, maybe automate sales and marketing, but it's still not yet kind of full force in the enterprise. And I think it's going to take time just as people get more comfortable with technology. Change management is not easy in large enterprises and, and people want to see some wins before they deploy more investments in AI.

Can I ask a big picture question about how you deliver these services to your customers? Obviously, there's been a huge shift over the last decade, but particularly the last few years and everything being done remotely in the cloud, all the compute power coming from, from those data centers. I'm sure for smaller customers that will continue. But some of your biggest customers, is there going to be or is there already a shift where you'll put the compute power locally, either for speed of delivery or for data protection aspects? I just wonder whether that's a growing trend you expect. And I'm asking it more for the whether there's been an overbuild of data centers or not and, and kind of if those trends are developing?

Well, I would say 5 years ago everyone thought every workload was going to go to the cloud. Now, especially large enterprises are much more nuanced in that perspective. They say, I'm going to run some workloads in the cloud, I'm going to run some workloads on-prem. And actually we have offerings for both. So since the company started, in fact, Andrew may remember when I took the company public and Andrew interviewed me, our cloud business was 2% of revenue. Now it's 74% of revenue. So So it's obviously grown meaningfully.

Will it go back down again or not?

No, I think the cloud will continue to grow quite healthily. But we still have lots of customers who want to deploy in their own data centers, want to manage their own infrastructure because for certain workloads they feel it's the right thing to self-manage. So this— whereas smaller companies, they want to move, put everything in cloud. They're not in the business of day-to-day management.

And maybe this goes back to where Leslie was going, but how concerned are you about some of the smaller AI companies that have no cash flow right now that I assume are coming onto your platform today? Hoping to make it.

Yes.

And whether they will make it. I mean, in the future.

Yes. So the good news is our growth was not driven by some outlier AI companies. It was core business that really drove the growth. But what you're really saying is that there's lots of companies have been well-funded and basically spending money like drunken sailors, if I can use that expression. And the question is, how durable is their revenue growth? Like you have cogent companies who are literally now in the hundreds of millions of dollars and growing incredibly fast. You have other companies who are also growing really fast, but they're not— they're sometimes gross margin negative and obviously they're losing a lot of cash. So the bet is that they can get enough brand and enough users that as the cost of tokens comes down, their business essentially becomes more profitable, kind of like the Uber model. Uber model— Uber lost money for years and then they slowly raised prices and now they're generating a ton of cash. That's a bet. I think there's a lot of companies who are— have not really nailed product-market fit. And I think there will be a shakeout. I think we are in the— I wouldn't call it the trough of disillusionment, but there is clearly a vetting going on. And now you're starting to see the separation between the haves and have-nots in a lot of different spaces. The nice thing for us is we're a horizontal infrastructure player, so we're not dogmatic about just only supporting one type of companies. We have small companies, medium-sized companies, and large companies who use our platform.