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Cramer goes over MongoDB's IPO to see if the software stock can tap into gains

  • "Mad Money" host Jim Cramer unpacked MongoDB's recent initial public offering to see if it can raise the bar for this year's technology IPO activity.
  • The software-as-a-service company has a unique concept, but slightly too many competitors for Cramer's taste.

In a lively year for technology-related initial public offerings, yet another tech IPO in the caught Jim Cramer's eye last week: that of MongoDB, a software platform for organizing databases.

Shares of MongoDB came public at $24, closing above $32 the same day. Since then, its shares have dipped back to the $31 level. As such, Cramer wondered whether the highs can last.

"Is this tech stock worth speculating on, or will it be another Snap or Roku or Switch, three newly minted IPOs that have been slammed since they came public?" the host of CNBC's "Mad Money" asked. "Let's find out by playing one of my favorite games. We're going to play Know Your IPO."

MongoDB is a software-as-a-service platform that helps companies re-structure their databases, the systems they use to organize, store and process company data.

For years, there were only two types of databases: relational databases, decades-old platforms that developers had to constantly update to complement modern software, and non-relational databases, newer systems that have been put to use for big data and internet applications.

"MongoDB does something different. The guys who created this company got frustrated by the available database options on the market, so they built their own platform designed for developers, by developers," Cramer said. "The company has its own unique offering that they believe combines the best of both relational and non-relational databases."

With a more flexible, document-centered structure, MongoDB's platform is easier to scale than the existing offerings and more compatible with the cloud and with the developers who use it, Cramer said.

In just one year, MongoDB's free, trial version of its platform has been downloaded from its website over 10 million times.

The newly public company also has more than 4,300 customers in 85 countries, including Barclays, ADP, Goldman Sachs, Morgan Stanley, and Anthem, as well as government agencies like the Department of Veterans Affairs, the New York Department of Sanitation and parts of the Department of Defense and the Department of Homeland Security.

As an example, Barclays realized that its old software was putting a strain on its newer digital banking initiatives. In 2012, the company hired MongoDB to streamline its database software, which in turn helped the big bank cut costs and develop new features for its mobile applications.

By the numbers, MongoDB's revenue growth is up 51 percent year over year, down slightly from its 55 percent growth in 2016. Its customer base is also growing, now at 4,300 compared to just 1,700 at the start of 2016.

The software player also has gross margins — what the company makes after the cost of goods sold — of more than 71 percent.

MongoDB's recurring revenues, a key metric for software-as-a-service companies, is now at 60 percent and growing more lucrative as customers stay with its service for longer.

But, like many other newly public tech companies, Cramer pointed out that MongoDB isn't profitable yet. So far, management has spent the money re-investing in the business.

Besides its lack of profitability, Cramer had one other concern about MongoDB: its industry rivals include tech giants with serious firepower and customer loyalty.

IBM, Microsoft and Oracle boast their own relational databases, and Amazon Web Services, Alphabet's Google Cloud and Microsoft Azure are non-relational players.

"Here's the bottom line: It looks to me like MongoDB definitively does have disruptive technology on their hands, but given the potential competition and the track record of other recent tech IPOs, I'm going to recommend this one, but I'm going to recommend it for speculation only," Cramer concluded. "In other words, you can own MongoDB, but only with money that you're totally willing to lose if the competition heats up and things get merciless for the company."

WATCH: Cramer looks into MongoDB's recent IPO

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