What happened
Shares of cloud monitoring and cybersecurity company Datadog (DDOG 3.58%) crashed on Thursday morning. The broader market was plunging too -- as of 12:18 p.m., the S&P 500 was down by 3.4% and the tech-heavy Nasdaq Composite was down 4.6%. But Datadog's drop-off was an even-steeper 8.2%, even though it turned in a pretty stellar first-quarter earnings report before the bell.
Heading into earnings, analysts had forecast Datadog would earn $0.11 per share (adjusted) on sales of $338 million in the quarter. It more than doubled that profit, though -- $0.24 per share -- and beat on the top line as well, with revenue of $363 million.
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So what
The market's sell-off Thursday kind of makes sense. On Wednesday, stocks surged on news that the Federal Reserve wasn't contemplating raising benchmark interest rates in 0.75 percentage point increments -- a tactic that would have been terrible news for many stocks. Looked at another way, however, the Fed said nothing about not raising the federal funds rate in 0.5 percentage point increments, and that just is what it did Wednesday. Moreover, market analysts are predicting the Fed will do just that at least two more times this year, which is also pretty bad news for stocks in general.
That's not necessarily a reason why traders should be selling Datadog in particular, though. Sales rocketed up by 83% year over year in Q1, with strong growth in accounts worth more than $100,000 annually -- those grew by 60%. The company's GAAP profits (calculated according to generally accepted accounting principles) were just $0.03 per share -- not quite as strong as the pro forma number that analysts based their targets on. Nevertheless, Datadog did deliver a GAAP profit; a year ago, it was still booking GAAP losses.
Datadog also generated tremendous free cash flow in the quarter, too: $129.9 million, which was even more than its adjusted profit.
Now what
And after beating earnings in Q1, Datadog now seems set to keep on beating earnings all year long.
Relative to analyst expectations of $0.12 per share and $362 million in sales for Q2, Datadog says you can expect it to earn anywhere from $0.13 to $0.15 per share on sales of at least $376 million. For the full year, Wall Street is expecting adjusted profits per share of $0.52, but Datadog says its earnings per share will be somewhere in the range of $0.70 to $0.77. Its guidance for sales in excess of $1.6 billion would likewise exceed the analysts' consensus expectation of $1.5 billion.
Long story short, this is a "beat and raise" quarter, with Datadog reporting great numbers, and promising more of the same to come. There's no logical reason at all for Datadog in particular to be falling.
