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Why Datadog Stock Soared on Tuesday

By Daniel Sparks – May 12, 2020 at 1:21PM

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The tech company's revenue soared passed analysts' estimates.

What happened

Shares of Datadog (DDOG -0.25%), which provides a monitoring and analytics platform for cloud-based systems, soared by as much as 24% Tuesday morning, and was up 22.4% as of 1:15 p.m. EDT.

The stock's sharp rise came on the heels of an impressive first-quarter report that featured skyrocketing revenue and an expanding gross profit margin.

A chart showing a stock price moving higher

Image source: Getty Images.

So what

Datadog's revenue jumped 87% year over year to $131 million, fueled by rapid growth in the number of customers providing it with annual recurring revenue greater than $100,000. The tech company ended the quarter with 960 of these customers, up from 508 in the year-ago period.

This torrid revenue growth generated leverage in the company's business model, and Datadog's gross profit margin expanded from 73% in the year-ago quarter to 80%. This translated to a huge improvement in the company's bottom line. The bottom line improved from a loss of $0.12 per share in the year-ago period to a profit of $0.02. Non-GAAP (adjusted) earnings per share swung from a loss of $0.09 to a profit of $0.06.

Analysts, on average, were expecting revenues of $118 million and an adjusted loss per share of $0.01. 

Now what

With so much business momentum, it wasn't surprising to see management provide an optimistic outlook. Management now expects full-year revenue to be between $555 million and $565 million, up from the previous forecast range of $535 million to $545 million. 

"[The coronavirus pandemic] has demonstrated the need to be digital-first and agile, has underscored the importance of observability into cloud environments, and reaffirmed the long-term opportunity for Datadog," said CEO Olivier Pomel in the earnings release.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Datadog. The Motley Fool has a disclosure policy.

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