A sustained rally in data dog NASDAQ: DOG remains to be seen, but the bottom has been reached for this market. After a year of downtrend fueled by analyst sentiment, the company reports better than expected numbers, leading the market higher. Given the strength reported by Checkpoint Software earlier in the week, this is not surprising and could lead the entire group higher. The least investors should expect is sideways, range bound action, but a reversal is possible.
Analysts have yet to develop new comments, but expect them to update their models. Details in the report demonstrate strong growth from the significant enterprise customer base and the company’s ability to gain traction with new products and services. This should lead to a firming of the target price, if not a trend reversal, but that is conjecture. Until then, analysts rate the stock as a moderate buy, seeing it trade flat to 40% above current performance.
Datadog has a robust quarter
Datadog had a robust first quarter with net sales of $482 million. This is a 33% increase year-over-year and beats Marketbeat.com’s consensus on wholesale growth by 275 basis points. The company reports a 30 percent increase in customers contributing at least $100,000 in ARR and a margin well above expectations.
Adjusted operating income margin was 18%, resulting in cash flow of $133 million and FCF of more than $116 million. Adjusted earnings per share were $0.28, up $0.04 better than last year and $0.04 better than expected. This is 1400 basis points above consensus and kept the balance sheet in good shape despite increased spending.
Guidance is equally impressive, calling for above-consensus growth for the year. From the details it can be seen that the second quarter will probably develop as expected by the analysts, but that business is likely to pick up in the second half of the year. For the year, the company expects earnings of between $1.13 and $1.20 compared to the consensus of $1.06 and this could be cautious.
The company is showing momentum and cloud services are a driving force. The global economy is still going digital, and those already using the cloud continue to transition to next-gen technologies.
Datadog’s balance sheet is in good shape and the company is poised to continue investing in new technology and advertising. Cash on hand is down year over year, but cash and equivalents are more than $2 billion and assets are up. The company’s debt has also increased, but not significantly, offset by an improvement in dilution.
The sell side supports Datadog: Institutions mark the bottom
Analysts rate Datadog a moderate buy despite the downside target price and institutions agree. Their institutional activity has been bullish overall over the last 12 months due to buying in the last 2 quarters. Its operations raised about $1.5 billion worth of shares, which is about 7% of the current market cap and coincides with the bottom in stock prices.
The stock bottomed at the end of the fourth quarter as institutional buying began to ramp up, and the sudden surge in stock prices after the release confirmed that bottom. The stock is likely to head higher soon, but upside potential may be limited. It could range if the market fails to scale above the 150-day moving average and $170.
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