Please ensure Javascript is enabled for purposes of website accessibility

Why Datadog Stock Is Slumping Today

By Timothy Green - Feb 12, 2021 at 12:28PM

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

An earnings beat wasn't enough to overcome lackluster guidance.

What happened

Shares of Datadog (DDOG -2.20%) sank on Friday after the company reported fourth-quarter results that beat analyst expectations. The guidance may be the culprit: Datadog is expecting revenue growth to slow substantially in 2021. Shares of the cloud monitoring and security company were down about 3.6% at 11:20 a.m. EST; they had been down as much as 8.2% earlier in the day.

So what

Datadog reported fourth-quarter revenue of $177.5 million, up 56% year over year and about $14 million ahead of analyst expectations. Adjusted earnings per share of $0.06 doubled from the prior-year period and were $0.04 higher than the average analyst estimate.

An image of a lock against a background of illuminated circuits.

Image source: Getty Images.

The fourth quarter was a bit more sluggish than the rest of 2020. The company booked 66% revenue growth for the full year, bringing the annual total to $603.5 million. Datadog now has 97 customers with annual recurring revenue of $1 million or more, nearly double the count at the end of 2019.

On top of reporting its results, Datadog announced two acquisitions. The company has agreed to acquire software security platform Sqreen and observability data pipeline provider Timber Technologies.

Now what

Datadog's guidance may be what's dragging down the stock. The company expects to report first-quarter revenue between $185 million and $187 million, along with adjusted EPS between $0.02 and $0.03. At the midpoint of those ranges, revenue would be up 42% year over year, while earnings per share would be down substantially from the $0.06 reported for the prior-year period.

For 2021, Datadog expects revenue between $825 million and $835 million and adjusted EPS between $0.10 and $0.14. That's good for revenue growth of 38%, while EPS will be down from the $0.22 reported for 2020.

Datadog is valued at around $35 billion, which works out to over 40 times the revenue guidance for 2021. With a sky-high valuation like that, a growth slowdown is the last thing investors want to see.

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.
$95.05 (-2.20%) $-2.14

*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 service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

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.