Will Wall Street’s enthusiasm for Datadog lead to big gains?

    • Datadog handily beat earnings and revenue displays in the most recent quarter
    • Wall Street Expects Strong Full Year Earnings Growth And 2023
    • Despite analysts’ long-term optimism, enthusiasm was dampened temporarily as the company led only in line with expectations

    Cloud monitoring specialist Data Dog (NASDAQ: DDOG) has recently been the subject of analyst enthusiasm – at least for the most part, according to data collected by MarketBeat. – MarketBeat

    On Friday, Credit Suisse started coverage with an ‘outperform’ rating. Earlier this week, Moffett Nathanson analyst Sterling Auty opened the cover with a buy rating and a price target of $143, representing a potential upside of 51.31%. Also, mid-market investment bank Robert W. Baird opened the stock’s cover with an “outperform” rating and a target of $120.

    The only outlier, in terms of new analyst coverage, was JPMorgan Chase, which started the coverage with a rating of “neutral.”

    The stock has lost ground since it reported the second quarter on Aug. 4. The company reported earnings of $0.24 per share, up 167% from the same quarter a year ago. That surpassed the consensus estimate of $0.14 per share, such as: MarketBeat earnings data show.

    Revenue came in at $406.14 million, handily exceeding the consensus estimate of $381.28 million. That was a year-over-year increase of 74%.

    The company has posted earnings growth of between 80% and 300% in the past five quarters. Sales have grown at a high double digit rate for the past eight quarters.

    In its earnings release, Datadog highlighted several new service partnerships and upgrades. It also noted that it had approximately 2,420 customers with annual recurring revenue of $100,000 or more, up 54% from the previous quarter.

    For the full year, Wall Street expects earnings of $0.80 per share, which would be a 67% increase. That is up another 34% in 2023, to $1.07 per share.

    So with all that good news, why did the stock dip?

    Obviously, part of the answer is the same for most stocks: concerns about interest rates, inflation, recession, and just a broad market decline.

    But in Datadog’s case, there was company-specific news that stunned investors: The company’s guidance was only in line with expectations rather than exceeding opinions.

    Datadog issued the following guidance for the third quarter:

    • Revenue between $410 million and $414 million.
    • Non-GAAP operating income is between $51 million and $55 million.
    • Non-GAAP net income per share between $0.15 and $0.17

    For the full year it expects:

    • Revenue between $1.61 billion and $1.63 billion.
    • Non-GAAP operating income is between $255 million and $275 million.
    • Non-GAAP net earnings per share are between $0.74 and $0.81.

    For the full year, you can see how net income has a chance of getting to the bottom of expectations, which would leave the analysts missing out significantly.

    Nevertheless, Wall Street clearly maintains confidence in the stock, given its optimistic consensus price target of $148.36, a potential rate of increase of 67.26%.

    Another sign of optimism that investors can often bring to the bank: Institutional ownership rose in the most recent quarter.

    Institutions own 72% of the stock, which is a strong vote of confidence. Funds hold 52% of the shares. In the past 12 months, more institutions have bought than sold shares.

    Why is institutional ownership important? First, investment banks, funds, insurance companies, college funds, and other major owners have dedicated research teams to scrutinize the opportunities.

    Second, institutions don’t just buy and sell. Instead, they tend to build positions over time when they have a belief about a stock. They also don’t tend to panic, although current algorithms often lead to sales when a price falls below pre-determined technical thresholds.

    Although it went public only three years ago, Datadog, with its market cap of $28.30 billion, ranks among the top makers of enterprise software in terms of value. It goes Salesforce (NYSE: CRM), SAP (NYSE: SAP), ServiceNow (NYSE: NOW), Snowflake (NYSE: SNOW), Business Day (NASDAQ: WDAY), and Shopify (NYSE: STORE). There are dozens of lower-rated industry peers, including some well-known names such as Asana (NYSE: ASAN) and Twilio (NYSE: TWLO).

    As a fairly new company in growth mode that institutions are confident in, Datadog is a good candidate for the next market uptrend.

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