Shares of cloud-monitoring and security company Datadog crashed the most on record in premarket trading in New York, as stronger-than-expected second-quarter results and an upgraded full-year profit and revenue outlook still failed to satisfy the market's high expectations.
Datadog now expects full-year adjusted earnings of $2.50 to $2.54 a share, up from $2.36 to $2.44 and above the $2.42 Bloomberg Consensus. Revenue is projected at $4.45 billion to $4.47 billion, compared with its previous forecast of $4.30 billion to $4.34 billion.
Full-Year Forecast:
- Sees adjusted EPS $2.50 to $2.54, saw $2.36 to $2.44, estimate $2.42 (Bloomberg Consensus)
- Sees revenue $4.45 billion to $4.47 billion, saw $4.30 billion to $4.34 billion, estimate $4.35 billion
- Sees adjusted operating income $1.01 billion to $1.03 billion, estimate $976.8 million
Second-quarter revenue jumped 36% to $1.12 billion, beating the $1.08 billion estimate, while adjusted earnings of 65 cents a share exceeded expectations by 5 cents. Adjusted operating margin expanded to 23%, though gross margin slipped to 80% from 81% a year earlier. We suspect this was a focus on why the stock tumbled in premarket trading.
Customers generating at least $100,000 in annual recurring revenue increased 23% to 4,720. Free cash flow surged 69% to $278.7 million, well ahead of estimates.
2Q Earnings:
- Revenue $1.12 billion, +36% y/y, estimate $1.08 billion
- Adjusted EPS 65c vs. 46c y/y, estimate 60c
- Adjusted gross margin 80% vs. 81% y/y, estimate 80.7%
- Adj. R&D expense $325.1 million, +24% y/y, estimate $327 million
- Adjusted operating margin 23% vs. 20% y/y, estimate 21.6%
- Customers with equal to or greater than $100,000 in annual recurring revenue 4,720, +23% y/y, estimate 4,576
- Cash and cash equivalents $435.0 million, -11% y/y
- Net Cash provided by Operating Activities $315.9 million, +58% y/y, estimate $259.3 million
- Free cash flow $278.7 million, +69% y/y, estimate $215 million
Third-quarter revenue and operating-income guidance also topped consensus.
3Q Forecast:
- Sees adjusted EPS 63c to 65c, estimate 63c
- Sees revenue $1.14 billion to $1.15 billion, estimate $1.11 billion
- Sees adjusted operating income $260 million to $270 million, estimate $253 million
What is Datadog?
Well, it's a cloud-based monitoring and security company that helps firms track the health and performance of their digital systems. It collects data from servers, cloud infrastructure, applications, databases, and networks that gives engineers a unified view of:
- Application performance and outages
- Cloud infrastructure usage
- Software logs and errors
- Cybersecurity threats
- User experience and website performance
- AI and large-language-model workloads
Why is Datadog important?
It's a bellwether for cloud computing and AI infrastructure spending. Its usage-based platform monitors applications, servers, databases, and AI workloads, giving Wall Street analysts a real-time indication of whether companies are expanding or cutting digital activity.
The outright crash in Datadog shares, with virtually no bid following earnings and the stock plunging as much as 23% in premarket trading, the steepest decline in records dating to its 2019 IPO, suggests investors are repricing a stretched valuation and lofty expectations rather than reacting to weak quarterly performance.
Wall Street's View:
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