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Datadog ((DDOG - Free Report) ), a data analytics company that makes tools for monitoring infrastructure and application performance, delivered a big beat-and-raise quarter on November 7 that caught a lot of investors off-guard.
As I write this on Tuesday morning, shares are trading 30% higher, approaching levels not seen since their gap down from $106 after an August earnings disappointment.
It appears DDOG is finally out of the dog house. And while the stock is a Zacks #2 Rank as type, I expect it to move into the upper deck soon after all the upward estimate revisions from analysts find their way into the Zacks Rank daily calculus.
Why Did the Street Get It Wrong?
There was a lot of pessimism going into this Q3 report.
And I tried to take advantage of it for my TAZR Trader group. On October 16, I published a special report for Zacks Confidential members titled "State of Threat: Cyber Crime 3.0" where I highlighted the evolving sophistication of global threat actors wreaking havoc for all kinds of companies, including most recently MGM Resorts, 23andMe, and Flagstar Bank of Michigan.
I explained how "ransom ware" attacks just went ICBM with state-sponsored infrastructure and weapons.
Here’s what I wrote when I bought DDOG for my TAZR Trader group the previous week...
TAZR Portfolio is buying a starter position in Datadog (DDOG - Free Report) between $85 and $90. We would add to this Zacks #1 Rank on any drop after earnings 11/7.
While DDOG is largely a data monitoring and analytics platform, Piper Sandler recently made it one of their top 5 cybersecurity picks as an end-to-end observability and cloud security platform. The Piper team has a price target for DDOG shares at $115, implying over 25% potential upside.
Data is the gold of this new digital age and we need look no further than the recent acquisition of Splunk by Cisco to see what enterprises are willing to invest to stay ahead.
Baillie Gifford Stakes a Big DDOG Claim
One of my favorite institutional Technology investors, Baillie Gifford, increased their Datadog position by 70% in Q2 to make them the 3rd largest holder, behind Vanguard and BlackRock, with over 10 million shares.
If you've seen my pieces on those Scottish Warlords of Edinburgh, you know they are buy and hold fanatics who do deep research, especially in novel technology platforms like Tesla (TSLA).
So while we can see they would have been buying DDOG shares between $60 and $90 in Q2, I don't expect to see that they turned sellers in Q3. In fact, they were probably buying again on the earnings August gap down.
Slowing Revenue Growth Priced-In
Bank of America is not as optimistic as Piper and downgraded shares to Neutral earlier this week, citing demand checks and scenario analysis suggesting downside revenue risk. They also lowered their price target to $105 from $123.
Technically, the stock has held up well since the gap down to $84 after August earnings, marking a higher low and potentially gearing up for a run to fill the gap down from $105.
And even the BofA downgrade has barely put a dent. Their "neutral" thesis and revenue concern centers around Datadog's "best-of-breed" premium service offering as being "too expensive" given potential competition. This might explain their 35% profit growth this year.
"Datadog is widely perceived to be a premium offering, which could drive the end-market to lower cost competitors, native hyperscaler offerings, and/or open-source alternatives, which could constrain revenue, RPO and billings growth," according to the BofA report.
The analysts now expect the software vendor to report 2024 revenue of $2.40 billion, down from its prior outlook of $2.57 billion. This makes DDOG trade at over 10x sales, but it offers unique solutions that should see 20%+ demand growth.
Remember, the Fortune 1000 needs all of these top "operators" to defend specific perimeters in combination.
(end of excerpt from my 10/16 Zacks Confidential report "State of Threat: Cyber Crime 3.0")
If you want a copy of that report, just email Ultimate@Zacks.com and tell ‘em Cooker sent you.
Out of the Doghouse
Even days before the DDOG Q3 report, Stifel analysts were subdued about what to expect in their earnings preview...
"As we have said since our downgrade last quarter, 2024 sellside expectations (~22%) remain too high. While buyside expectations are muted into the print, we do not envision multiple expansion until revenue growth stabilizes and/or potential Fed rate cuts become clearer."
That ~22% is referring to the revenue consensus for next year. And Stifel analysts could still be right that current estimates for the company to cross $2.5 billion in 2024 are too high.
But right now, all eyes are on the notable Q3 revenue beat and lift in guidance for this year.
Q3 revenue came in at $547.5 million, up over 25% from $436.5 million a year before and ahead of the $524M consensus.
Even better, for Q4 Datadog anticipates $564 million to $568 million in revenue along with 42 cents to 44 cents in adjusted earnings per share. Analysts were looking for $545 million and 35 cents, respectively.
The company’s “beat-and-raise” was driven by customer demand for better security solutions amid increasing cybersecurity threats.
Datadog management lifted their full-year 2023 revenue forecast to the range of $2.10-$2.11 billion, from a prior $2.05-$2.06 billion.
And they see adjusted (non-GAAP) earnings between $1.52 and $1.54 per share, up from $1.30-$1.34 per share expected earlier.
Datadog's total number of new and existing customers with annual recurring revenue (ARR) of $100,000 or more rose 20% year-over-year to 3,130.
The Year Ahead
While investors now have renewed optimism in the near term, we still don’t know what 2024 looks like.
But we’ll get a much better idea in the coming days as analysts rework their models and projections for demand and growth. Be sure to check the Zacks Detailed Estimates page for DDOG to see the upward revisions as they filter in.
"Companies across all industries and sizes are building cloud applications and services to deliver positive business outcomes, including more users, higher revenue growth, improved productivity, and cost savings," said Datadog CEO Olivier Pomel.
In sympathy with Pomel's outlook, other data-centric operations platforms like Snowflake ((SNOW - Free Report) ) and MongoDB ((MDB - Free Report) ) were up 10-12% Tuesday morning.
And now, DDOG is recognized even more as the go-to hound for cybersecurity.
If Datadog shares have any kind of pullback to fill the gap up from $80, I would be a buyer. But I doubt it gets below Tuesday’s low near $96 so you better move fast.
Disclosure: I own shares of DDOG for the Zacks TAZR Trader portfolio.
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Bull of the Day: Datadog (DDOG)
Datadog ((DDOG - Free Report) ), a data analytics company that makes tools for monitoring infrastructure and application performance, delivered a big beat-and-raise quarter on November 7 that caught a lot of investors off-guard.
As I write this on Tuesday morning, shares are trading 30% higher, approaching levels not seen since their gap down from $106 after an August earnings disappointment.
It appears DDOG is finally out of the dog house. And while the stock is a Zacks #2 Rank as type, I expect it to move into the upper deck soon after all the upward estimate revisions from analysts find their way into the Zacks Rank daily calculus.
Why Did the Street Get It Wrong?
There was a lot of pessimism going into this Q3 report.
And I tried to take advantage of it for my TAZR Trader group. On October 16, I published a special report for Zacks Confidential members titled "State of Threat: Cyber Crime 3.0" where I highlighted the evolving sophistication of global threat actors wreaking havoc for all kinds of companies, including most recently MGM Resorts, 23andMe, and Flagstar Bank of Michigan.
I explained how "ransom ware" attacks just went ICBM with state-sponsored infrastructure and weapons.
Here’s what I wrote when I bought DDOG for my TAZR Trader group the previous week...
TAZR Portfolio is buying a starter position in Datadog (DDOG - Free Report) between $85 and $90. We would add to this Zacks #1 Rank on any drop after earnings 11/7.
While DDOG is largely a data monitoring and analytics platform, Piper Sandler recently made it one of their top 5 cybersecurity picks as an end-to-end observability and cloud security platform. The Piper team has a price target for DDOG shares at $115, implying over 25% potential upside.
Data is the gold of this new digital age and we need look no further than the recent acquisition of Splunk by Cisco to see what enterprises are willing to invest to stay ahead.
Baillie Gifford Stakes a Big DDOG Claim
One of my favorite institutional Technology investors, Baillie Gifford, increased their Datadog position by 70% in Q2 to make them the 3rd largest holder, behind Vanguard and BlackRock, with over 10 million shares.
If you've seen my pieces on those Scottish Warlords of Edinburgh, you know they are buy and hold fanatics who do deep research, especially in novel technology platforms like Tesla (TSLA).
So while we can see they would have been buying DDOG shares between $60 and $90 in Q2, I don't expect to see that they turned sellers in Q3. In fact, they were probably buying again on the earnings August gap down.
Slowing Revenue Growth Priced-In
Bank of America is not as optimistic as Piper and downgraded shares to Neutral earlier this week, citing demand checks and scenario analysis suggesting downside revenue risk. They also lowered their price target to $105 from $123.
Technically, the stock has held up well since the gap down to $84 after August earnings, marking a higher low and potentially gearing up for a run to fill the gap down from $105.
And even the BofA downgrade has barely put a dent. Their "neutral" thesis and revenue concern centers around Datadog's "best-of-breed" premium service offering as being "too expensive" given potential competition. This might explain their 35% profit growth this year.
"Datadog is widely perceived to be a premium offering, which could drive the end-market to lower cost competitors, native hyperscaler offerings, and/or open-source alternatives, which could constrain revenue, RPO and billings growth," according to the BofA report.
The analysts now expect the software vendor to report 2024 revenue of $2.40 billion, down from its prior outlook of $2.57 billion. This makes DDOG trade at over 10x sales, but it offers unique solutions that should see 20%+ demand growth.
Remember, the Fortune 1000 needs all of these top "operators" to defend specific perimeters in combination.
(end of excerpt from my 10/16 Zacks Confidential report "State of Threat: Cyber Crime 3.0")
If you want a copy of that report, just email Ultimate@Zacks.com and tell ‘em Cooker sent you.
Out of the Doghouse
Even days before the DDOG Q3 report, Stifel analysts were subdued about what to expect in their earnings preview...
"As we have said since our downgrade last quarter, 2024 sellside expectations (~22%) remain too high. While buyside expectations are muted into the print, we do not envision multiple expansion until revenue growth stabilizes and/or potential Fed rate cuts become clearer."
That ~22% is referring to the revenue consensus for next year. And Stifel analysts could still be right that current estimates for the company to cross $2.5 billion in 2024 are too high.
But right now, all eyes are on the notable Q3 revenue beat and lift in guidance for this year.
Q3 revenue came in at $547.5 million, up over 25% from $436.5 million a year before and ahead of the $524M consensus.
Even better, for Q4 Datadog anticipates $564 million to $568 million in revenue along with 42 cents to 44 cents in adjusted earnings per share. Analysts were looking for $545 million and 35 cents, respectively.
The company’s “beat-and-raise” was driven by customer demand for better security solutions amid increasing cybersecurity threats.
Datadog management lifted their full-year 2023 revenue forecast to the range of $2.10-$2.11 billion, from a prior $2.05-$2.06 billion.
And they see adjusted (non-GAAP) earnings between $1.52 and $1.54 per share, up from $1.30-$1.34 per share expected earlier.
Datadog's total number of new and existing customers with annual recurring revenue (ARR) of $100,000 or more rose 20% year-over-year to 3,130.
The Year Ahead
While investors now have renewed optimism in the near term, we still don’t know what 2024 looks like.
But we’ll get a much better idea in the coming days as analysts rework their models and projections for demand and growth. Be sure to check the Zacks Detailed Estimates page for DDOG to see the upward revisions as they filter in.
"Companies across all industries and sizes are building cloud applications and services to deliver positive business outcomes, including more users, higher revenue growth, improved productivity, and cost savings," said Datadog CEO Olivier Pomel.
In sympathy with Pomel's outlook, other data-centric operations platforms like Snowflake ((SNOW - Free Report) ) and MongoDB ((MDB - Free Report) ) were up 10-12% Tuesday morning.
And now, DDOG is recognized even more as the go-to hound for cybersecurity.
If Datadog shares have any kind of pullback to fill the gap up from $80, I would be a buyer. But I doubt it gets below Tuesday’s low near $96 so you better move fast.
Disclosure: I own shares of DDOG for the Zacks TAZR Trader portfolio.