Investors are fretting over the uncertain economic outlook and fleeing the stock market. Growth stocks are especially feeling the brunt of the market's sell-off, and as of this writing, the tech-heavy Nasdaq Composite index is down over 27% from its all-time high, comfortably past the bear market threshold of 20%.
The indiscriminate selling, however, is resulting in some excellent buying opportunities for patient long-term investors. Two such businesses with excellent fundamentals are Datadog (DDOG -0.95%) and MercadoLibre (MELI 8.27%). Let's see why overlooking these promising businesses now could turn out to be a missed opportunity.
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1. Datadog: Innovation is expanding its opportunities
Reliable technology infrastructure is not just a nice-to-have in today's digital-first and cloud-powered business world. It is table stakes. Datadog, with its growing breadth and depth of technology monitoring and security products, is helping businesses run their operations without disruptions.
The recently reported first quarter was more evidence that Datadog is an increasingly integral part of modern-day businesses as customers continue to adopt more and more products from the company.
| Customer Product Adoption | Q1 2021 | Q4 2021 | Q1 2022 |
|---|---|---|---|
| Customers using 2 or more products | 75% | 78% | 81% |
| Customers using 4 or more products | 25% | 33% | 35% |
| Customers using 6 or more products | 4% | 10% | 12% |
Data source: Datadog.
Datadog's net dollar-retention rate (how much more the average existing client spends from one year to the next) topped 130% for the 19th consecutive quarter. The company also grew its new customers over 30% year over year, reaching 19,800. And the number of high-value customers (those with $100,000 or more in annual recurring revenue) grew even faster at 60% to 2,250.
With that strong customer momentum, it's no surprise Datadog grew its first-quarter revenue a massive 83% year over year. And the company did that while producing $129.9 million in free cash flow, which is a testament to its efficient execution.
Datadog is entrenching itself deeper into its customers' organizations with a steady stream of new products. In the first quarter, it broadened its security products with its Application Security Monitoring, which protects against hackers targeting code vulnerabilities in web applications. It also expanded its Watchdog AI Engine with key features such as root-cause analysis, which helps pinpoint problems in technology infrastructure automatically.
And it extended its partnership with Microsoft, becoming a partner for its Azure Adoption Framework, where customers get to learn about Datadog's capabilities much sooner in their cloud adoption.
The business is thriving, and the tailwinds of digital transformation bode well. With shares trading around 45% below their all-time high from six months ago and a lower price-to-sales ratio of 29 (relative to the company's historical levels), now is an excellent time to take a position in Datadog.
Data by YCharts.
2. MercadoLibre: A promising future with growing scale
MercadoLibre, founded in 1999 in Argentina, pioneered e-commerce in Latin America. The company operates in 18 countries, although it generates most of its revenue from Brazil, Argentina, and Mexico. Over the years, it has grown its dominance as more and more people enjoy the convenience and speed of its online marketplace and delivery services.
MercadoLibre also makes it easy for customers to pay via its Mercado Pago platform, which started as a digital wallet and payment processing service. It has steadily grown into an all-in-one financial app that offers consumers access to credit cards, installment payments, personal loans, cryptocurrency trading, and other features. While MercadoLibre's e-commerce business brings in customers to shop, Mercado Pago makes those relationships sticky.
The company reported outstanding results for the first quarter. Despite tough year-over-year comparisons (the pandemic dramatically boosted revenue in 2020 and 2021), MercadoLibre grew its top line 63%. Gross merchandise volume, which represents the total monetary value of all items the company sold through its marketplace, reached $7.7 billion, up 27% year over year. Total payment volume (TPV) on the Mercado Pago platform increased 72% to $25.3 billion. To top it off, the company also became profitable on a GAAP basis, recording a net income margin of 2.9%.
MercadoLibre is extending its lead further with its logistics and shipping network, Mercado Envios, which is proving to be transformational for the sellers on its platform. Mercado Envios shipped 22% more items relative to the first quarter of 2021, and about 55% of those shipments were delivered on the same or next day.
Data by YCharts.
Overall, MercadoLibre is deepening its relationships with its customers and expanding access to commerce and financial services throughout Latin America. Thanks to the current market sell-off, shares of MercadoLibre are trading at a price-to-sales multiple of about five, close to their cheapest valuation since the company went public. Looking past the volatility of this bear market and buying shares of this great business now will likely pay handsome rewards in the long run.
