A class action lawsuit was filed against MongoDB, Inc. (MDB) by Levi & Korsinsky on July 9, 2024. The plaintiffs (shareholders) alleged that they bought MDB stock at artificially inflated prices between August 31, 2023 and May 30, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought MongoDB stock during that period can click here to learn about joining the lawsuit.
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MongoDB is a Software-as-a-Service (SaaS) provider. It offers a developer data platform that enables innovators and developers to leverage the company’s fast-growing database and integrated services.
MongoDB’s Misleading Claims
According to the lawsuit, MongoDB and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about certain planned business strategies and ancillary issues from SEC filings and related material.
In the earnings call for Q2 FY24 held on August 31, 2023, CEO Dev Ittycheria mentioned that the company changed the sales incentive strategy related to its Atlas offering to reduce friction in the sales process. Mainly, the company stopped incentivizing sales representatives to sign one-year commitments. Instead, sales reps were asked to focus on accelerating new workload acquisition.
Furthermore, during the same call, CFO Michael Gordon said that the new strategy resulted in fewer upfront cash collections but higher number of workloads. Owing to this strategy, Atlas’ revenue grew 38% year-over-year in Q2, while the Atlas dollars committed upfront fell by 15% compared to the year ago period.
Finally, in the earnings call for Q3 FY24, the CFO noted that the company was not providing an outlook for Fiscal 2025 yet. However, he stated that things have stabilized.
Overall, MongoDB and the Defendants failed to provide clarity about the impact of the company’s planned strategies and their impact on the outlook.
Plaintiffs’ Arguments
The plaintiffs maintain that MongoDB and the Defendants deceived investors by lying and withholding important information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the shortcomings of the newly implemented strategies.
The information became clear with two events. On March 7, 2024, MDB released the results for the full-year Fiscal 2024 and guided for Q1 and FY25 financials. The company noted that it will record almost no revenue from unused Atlas commitments in FY25 compared to over $40 million in FY24. The company blamed this decline on the change in the incentive policy for upfront commitments. MDB shares fell nearly 7% on the news on March 8.
Additionally, on May 30, MDB slashed its full-year Fiscal 2025 guidance, citing a tough macro environment and changes in its incentive policy. Following the news, MDB shares plunged over 23.8% on May 31.
Overall, MongoDB’s changes to its strategic incentive plan led to a notable decline in Atlas’ revenues and the company’s share price. In the past six months, MDB shares have lost 51.9%.
