Hedge fund manager Chase Coleman has been investing in the tech sector for decades now. Known as a "Tiger Cub," Coleman worked at Tiger Management under famed investor Julian Robertson as a research analyst in 1997. Then in 2001, he went on to found Tiger Global, which manages $50 billion in total assets, including a roughly $26.5 billion public equities portfolio. Given Coleman's breadth of knowledge, particularly in the tech sector, it's worth keeping an eye on the stocks that Tiger Global is buying and selling. In the first quarter of 2025, Tiger Global dumped its stake in Datadog (DDOG +1.99%) and piled into beaten-down payments stock Block (XYZ +1.00%).
Selling Datadog: A good business trading at a big valuation
Datadog is a cloud monitoring and security platform that enables businesses to keep an eye on their entire tech stack with real-time data and automation, making managing the complex task simpler. This effectively makes operating on the cloud much easier, letting more companies make the leap. It's a good niche to be these days, considering the risks that companies moving to the cloud face.
Image source: Getty Images.
Since going public in 2019, Datadog has performed well and its stock is up 220% (as of May 21). However, many tech stocks often find themselves a victim of their own success because their valuations climb rapidly, making their margin for error slimmer. Earlier this year, Datadog forecast first-quarter revenue and full-year revenue below what Wall Street analysts had expected, and the stock plunged.
The stock also struggled through late March and early April, likely due to President Donald Trump's "Liberation Day." While Datadog is not affected by tariffs in the same way a company that produces physical goods might be, a broader economic slowdown would likely push off the ability of companies to take on expensive tech projects. In its first-quarter earnings report, Datadog raised its full-year projection, showing that its products and services are still very much in demand. Still, the stock is by no means cheap, meaning investment managers, particularly those looking 12 to 18 months out, really need to have full conviction if they are going to buy the shares.
DDOG PE Ratio (Forward) data by YCharts
Buying this down-and-out payments giant
While Tiger Global was unlading Datadog, it purchased roughly 1.88 million shares in the consumer and merchant payments company Block. Block was viewed as a pandemic darling in 2020 and 2021, primarily because e-commerce and digital payments ballooned during the lockdowns. Additionally, consumers' savings increased due to government stimulus, low interest rates made borrowing easier, and people had plenty of money to spend from home with the economy more or less shut down. This translated into heavier payments volume for Block.
But troubles this year hit hard and fast, pushing the stock down about 30% this year, well below the broader market's performance. In the first quarter, gross payment volume (GPV) at the company fell more than 8% from the prior quarter, while revenue in the company's Square merchant payment processing business and Cash App also fell from the prior quarter. Block's performance is heavily influenced by the economy, and concerns about weaker consumer spending and a potential recession are still quite relevant.
NYSE: XYZ
Key Data Points
Management also lowered its 2025 outlook, telling analysts to expect a 19% gross margin this year instead of the 21% it had previously predicted. "We saw changes to consumer spending as the quarter progressed that we believe drove the majority of our forecast miss," Chief Executive Officer Jack Dorsey wrote in quarterly shareholder letter.
After the quarterly results earlier this month, Benchmark analyst Mark Palmer downgraded the stock from a "buy" rating to "hold," according to Barron's. Palmer said Block's Cash App should be resonating with lower-income customers right now as opposed to traditional bank accounts, given the economic uncertainty. "As such, we find stagnation in the number of active users of the app even more concerning than users' reduced spending on their Cash App Cards," he said in a research note. Square also faces stiffer competition from the likes of Toast and Shift4 Payments.
Although Block has struggled, concerns about a recession have come down a bit since early May due to the increased likelihood of trade agreements and lower tariff rates, so some of the market's concerns are likely priced in to the stock. Furthermore, with Block's forward earnings multiple now below 20, it is much more likely that better-than-expected earnings or positive economic changes lead to a strong rebound.
