Why Datadog (DDOG) Stock Is Trading Up Today

Adam Hejl /
2024/02/02 2:42 pm EST

What Happened:

Shares of cloud monitoring software company Datadog (NASDAQ:DDOG) jumped 6.2% in the afternoon session as the Nasdaq and S&P 500 surged after solid earnings from tech giants, including Meta (NASDAQ:META), which soared more than 20% (MAU/DAU growth, guidance beat, and dividend initiation), and Amazon (solid revenue beat). In addition, yields surged, with the 2-year Treasury yield rising to 4.38%, while the 10-year Treasury yield broke past the 4% mark as fresh labor market data exceeded expectations. The Bureau of Labour reported non-farm payrolls for January 2024, which revealed that the US economy added 353,000 jobs (versus expectations for +185,000 jobs). The strong jobs report points to a resilient economy despite worries about the lag effects of rate hikes potentially slowing down business activities. The strong market data could cause the Fed to delay cutting rates in 2024, with market participants expecting the first rate cut to be announced in the first half of the year. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Is now the time to buy Datadog? Access our full analysis report here, it's free.

What is the market telling us:

Datadog's shares are very volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 22.4% on the news that the company reported an impressive "beat and raise" quarter. Third quarter results blew past Wall Street's expectations for revenue, non-GAAP operating profit and earnings per share. We were also impressed by Datadog's significant improvement in new large contract wins, which helped contribute to the revenue beat. In addition, gross margin improved, and the company continued to generate positive cash flow. 

Looking ahead, management provided an optimistic outlook as they raised guidance for revenue, non-GAAP operating income, and EPS for the full year, all surpassing consensus estimates. Revenue guidance for the next quarter also exceeded expectations. Overall, it was a fantastic quarter that should have shareholders cheering.

Datadog is up 16.4% since the beginning of the year. Investors who bought $1,000 worth of Datadog's shares at the IPO in September 2019 would now be looking at an investment worth $3,566.

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