Datadog, Inc. (NASDAQ: DDOG)
Datadog is a leading software-as-a-service (SaaS) platform that helps companies monitor their cloud infrastructure and security, and troubleshoot problem areas across their data systems. The company has its headquarters in New York City, USA and was founded in 2012. Having been noticed for its resilience through difficult macroeconomic headwinds, the company has seen an increase in mentions by 100% over the last day encouraging investors to wonder what else makes this stock so positively hyped. Currently shares of Datadog trade at $116.39 per share.
Nowadays small, high-growth, and profitable software stocks that also don't break the bank like Datadog are hard to come by. Here are a few reasons why you should consider taking a position in the company now.
Datadog has seen spectacular Q2 results, with revenue growing 83% in the first quarter and 74% YOY to $406 million (beating analysts’ expectations by $25 million) and third-quarter revenue projected to grow 34%.
Its adjusted net income surged 160% to $84 million, or $0.24 per share, which also cleared expectations by nine cents.
The company also saw tremendous customer growth (54% growth in customers spending $100,000 or more) and free cash flow ($60.2 million) recently.
Over the past six months, Datadog has generated $190 million in free cash flow, representing a margin of almost 25%.
The company's net retention rate surpassed 130% for the 20th consecutive quarter, while churn stayed in the mid-to-low single digits.
The number of customers spending over $100,000 annually continued to improve, jumping 54% year over year to 2,420 during the quarter.
The company is continuing to spend about 42% of its revenue on research and development while generating a 15% free-cash-flow margin, which will allow it to reap lots of benefits in the near future.
Although it’s considered conservative, full-year guidance calls for revenue to increase between 56% and 58% over 2021 which is a good sign.
Gartner recently named Datadog a leader in the 2022 Magic Quadrant for application performance monitoring and observability, the second consecutive year Datadog has been named on this prestigious list which reinforces its standing as a fundamentally solid company.
No investments are 100% flawless, and Datadog wouldn’t be an exception. Here are some reasons why it might not be the best time to invest in the company.
Management is cautious about the potential for demand to soften in the second half of the year due to the uncertain economic environment, which led to the conservative guidance.
Datadog saw spending expand at a slower rate in certain sectors: this effect was more pronounced in certain industries, particularly in consumer discretionary, which includes e-commerce and food and delivery customers.
The company’s operating margins declined sequentially by GAAP and non-GAAP measures, and its GAAP operating margin turned negative again after two positive quarters.
Datadog's profitability at this early stage of its growth curve reflects a strong business. However, Datadog shares are not very cheap despite the fall. As long as Datadog continues to reinvest in new features and sees those investments rewarded with more customers adopting its platform, investors could realize substantial gains on their investment over the next decade and beyond.
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