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What happened
Actions of Datadog (NASDAQ: DDOG) crater Wednesday, following the company’s third-quarter earnings report. The maker of monitoring tools for cloud computing systems crushed Wall Street estimates, but some investors felt the surprise just wasn’t big enough. Stock prices fell as low as 13.9% on Wednesday morning, recovering somewhat to an 11% decline by 11:30 a.m. EST.
So what
Datadog sales increased 62% year-over-year to $ 155 million. The bottom line went from break-even to adjusted earnings of $ 0.05 per share. Your average analyst would have settled a profit close to $ 0.01 per share on revenue of around $ 144 million. The company also offered a fourth quarter earnings forecast in line with the current Street View, and management’s revenue target for the next quarter has exceeded analysts’ consensus by $ 8 million.
Here’s the sequel for Datadog shareholders. Image source: Getty Images.
Now what
A handful of analysts downgraded the stock after the report, arguing that it appears overvalued given the decelerating income growth.
You can’t really blame Datadog investors for taking some profit off the table today. The stock is still up 145% in 2020 and 176% in the past 52 weeks, and that’s after Wednesday’s sharp correction. That being said, the company is keeping all its promises and continues to set bullish targets for the next report. The underlying business is well positioned to continue to crush the market for years to come. Selling the stock today looks like a big mistake in the long run.
“Businesses around the world and across industries are prioritizing digital operations like never before, and the cloud is clearly a strategic winner to enable greater agility and innovation,” said CEO Olivier Pomel in the call for results. “We continue to believe that Datadog is a major beneficiary of this trend and that we remain very well positioned to win in the market.”
I agree with this review and would consider purchasing Datadog at a generous but temporary discount today.
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