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Why Datadog Stock Fell 11% in August

By Keith Noonan - Sep 3, 2020 at 11:11AM

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Despite recent sell-offs, the cloud software stock has more than tripled since its IPO last September.

What happened

Shares of Datadog (DDOG 0.82%) slipped 11% in July, according to data from S&P Global Market Intelligence. The stock fell after the data management company posted second-quarter earnings.

DDOG Chart

DDOG data by YCharts

Datadog reported its second-quarter results on Aug. 6, prompting steep sell-offs for the stock despite sales and earnings that were better than the market anticipated. The company posted adjusted earnings per share of $0.05 on revenue of $140 million, while the average analyst estimate had guided for adjusted earnings of $0.01 on sales of $135 million. However, management warned that its customers were facing pressure from economic impacts related to the coronavirus pandemic, and investors appear to have interpreted that as a signal to take profits on the stock.

A magnifying glass icon over a cloud icon.

Image source: Getty Images.

So what

Datadog's second-quarter sales climbed 68% year over year, and the company swung into adjusted profitability after posting a loss of $0.07 per share in the second quarter of 2019. The business closed out the quarter with 1,015 customer contracts worth at least $100,000 in annualized recurring revenue, which was up from 594 customers in the category at the end of the prior-year period.

The quarterly results were actually pretty good on many fronts, but they weren't exciting enough to keep Datadog's stock rally alive going amid indications that growth might be under pressure in the near term.

Now what

Datadog's stock has continued to slump early in September's trading. The company's share price has declined roughly 4% in the month so far.

DDOG Chart

DDOG data by YCharts

Datadog's data monitoring services put the business in a good position to capitalize on the long-term growth of cloud-based applications, but the company's highly growth-dependent valuation suggests the stock could be poised for volatility in the near term. The data software specialist has a market capitalization of roughly $24.9 billion and is valued at approximately 43.5 times this year's expected sales. 

Keith Noonan 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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