Capital Markets / Investor Relations in Two Minutes or Less
What MongoDB $MDB 4Q23 Teaches Public Executives
MongoDB recently reported fourth quarter earnings and posted another SaaS-plotion.
The company posted a great quarter, but missed the guide for FY24.
Jamin Ball of Altimeter Capital asks whether the guidance miss represents a strategy to create a beat and raise scenario for FY24.
See here: https://lnkd.in/gauZQTjt
Destroying value to create a beat and raise set up seems absolutely insane to me.
There are two things likely driving the SaaS-Plotion Guidance misses
1. Private vs. Public Operating View: Private companies typically set an aspirational target and throttle all cylinders to achieve it. A miss can be easily managed away. Public markets do not allow a company to easily explain away a forecast miss.
2. Myopic Focus on the Present Financial Period: The last minute nature of SaaS bookings cadence fosters a myopic focus on only the present financial period. No one is truly managing future period expectations.
SaaS Forecasting Example
Let us use 4Q23 as an example.
Management might start in October at a $90M target for the period, but FP&A will be suggesting $70M.
By the December period, management might call down to $70M and FP&A may have called down to $45M.
Management will wait until 11:59 PM on December 31, to make the final call that FP&A’s $45M forecast was the right one.
Three Issues Are Created by the Process
1. Last Minute Bookings: Waiting for the bolus of business at 11:59 PM on the last day of the quarter makes forecasting future periods nearly impossible.
2. Pull Forward: A second issue is that companies may start to pull business forward to offset weakness.
3. Misses Compound: Once you miss the current period, the miss becomes doubly negative.
Misses affect not only the current period but future periods in SaaS due to the recurring aspect of revenue.
Ultimately, private company forecasting methods are not well-suited for public equity markets.
Financial expectations management represents the most valuable lever management has to impact stock valuation.
A myopic focus on present financial periods only can be significantly value destructive!
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