Please ensure Javascript is enabled for purposes of website accessibility

Why Datadog Stock Skyrocketed 58% in May

By Billy Duberstein – Jun 3, 2020 at 8:52AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cloud application monitoring company reported impressive growth in its earnings report.

What happened

Shares of Datadog (DDOG 1.52%) rose a stunning 58% in May, according to data from S&P Global Market Intelligence, as the cloud application monitoring company reported blockbuster revenue growth in its first-quarter earnings report.

Cloud software stocks have been all the rage over the past few years and especially during the COVID-19 pandemic, as investors anticipate accelerated adoption of these next-generation platforms to enable work, medical care, and education from home. Add Datadog's confirming financial results on top of that, and the powerful combo sent shares vertical during May.

A young female worker points to a graph on both her desktop screen and a laptop by her side.

Image source: Getty Images.

So what

During its quarterly earnings report, released on May 11, Datadog saw 87% revenue growth, with the number of customers spending over $100,000 nearly doubling to 960, up from just 508 one year ago. The company also released its new security monitoring product that integrates security, developer, and operations personnel into a single monitoring app.  

Importantly, management noted that Datadog had surpassed 400 different third-party integrations. These are key, as the value proposition for Datadog's service is that it seamlessly monitors a wide variety of IT equipment, applications, and software.

Not only did Datadog smash expectations for the quarter, but management also guided to revenue of $134 million to $136 million for the current quarter, well ahead of analyst estimates for $126.3 million. Over the full year, Datadog expects adjusted operating profits between breakeven and $10 million, which is impressive for high-growth cloud software companies, many of which are putting up losses in order to fuel growth.

Now what

After the recent run-up in its stock price, Datadog is raising money, having sold $650 million of 0.125% convertible notes due 2025 at the end of May, with a conversion price of $92.30, or about 30% above today's share price. Normally, I don't like to buy a stock when it is effectively selling shares to the public after a big run. On the other hand, there have been many cases of high-growth cloud software companies issuing shares and then continuing to climb anyway in recent years.

If anything, Datadog's management appears to be making a shrewd move after May's meteoric 58% run and 162% rise since its September IPO, bolstering the company's war chest at attractive prices so it can double down on innovation. While the stock remains very expensive, Datadog's future appears quite bright, and shares could still make for a good buy with a long-enough time horizon. With all-star growth and rising margins, Datadog should be at the top of any tech investor's buy list on any pullbacks.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Datadog. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Datadog, Inc. Stock Quote
Datadog, Inc.
DDOG
$88.78 (1.52%) $1.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.