Insights

Why Datadog Was a Dog of a Stock on Thursday

What happened

Datadog (NASDAQ: DDOG) wasn’t a favorite stock market pet among investors on Thursday. The company’s shares fell by nearly 2% on the day, versus only a slight decline of the broad S&P 500 index. While Datadog notched a pair of beats in its freshly released quarterly results, investors were nevertheless unimpressed. The lack of detail about a new acquisition also may have played a role in the decline.

So what

For its second quarter, Datadog’s revenue tallied just over $406 million, representing considerable year-over-year improvement of 74%. Even better, non-GAAP (adjusted) net income more than doubled, advancing from the second-quarter 2021 result of $32 million to the current period’s nearly $84 million ($0.27 per share).

Those numbers were more than good enough to trump analyst estimates. On average, prognosticators following the stock were modeling less than $382 million for revenue and adjusted net income of $0.15 per share.

Much of Datadog’s growth stems from a notable (54%) increase in clients spending at least $100,000 annually on subscriptions for the company’s services. The total count was roughly 2,420 at the end of June.

Separately, Datadog announced that it has acquired privately held Seekret, which it describes as “a highly innovative API observability company.” Datadog didn’t disclose how much it’s paying for this new asset.

Now what

Datadog also proffered third-quarter and full-year 2022 guidance. For the latter period, it’s expecting revenue of $1.61 billion to $1.63 billion and adjusted net income of $0.74 to $0.81.

Those figures are broadly in line with analyst expectations, which might have been a key reason for the stock’s Thursday fall. They indicate slowing top-line growth, first of all, and investors in growth companies like to see their businesses notably exceed forecasts instead of simply matching them.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Datadog. The Motley Fool has a disclosure policy.

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