Datadog (DDOG) and Cloudflare (NET) Report. Taking Gains in Nevro (NVRO).
Datadog (DDOG) reported Q4 results yesterday afternoon that surpassed expectations but were light in terms of 2021 EPS guidance. Revenue was up 56% to $178 million (beating by $14 million) while adjusted EPS of $0.06 beat by $0.04. Revenue guidance for 2021 of $825 million to $835 million is above consensus of $803 million but adjusted EPS guidance of $0.10 to $0.14 was below consensus of $0.19.
To be clear, these results are very good. The catch is that in this market and with the stock trading right near all-time highs the market is extremely greedy. It wants amazing, not just very good. For long-term investors the message is that Datadog is going to continue investing in growth and that’s going to pressure the bottom line. I agree with that strategy – you’ve got to make hay while the sun is shining. But in an ideal world (which is where many investors want to live right now) the company could do that while growing on the bottom line too. My best guess is that DDOG will continue to move sideways in its established trading range for a few weeks. For that reason, it remains a hold. We’ll revisit that rating if the stock looks ready to break out or gets toward the low end of its trading range. HOLD
Cloudflare (NET) reported Q4 results that beat expectations too. Revenue was up 50% to $126 million (beating by $7.6 million) while adjusted EPS of -$0.02 beat by $0.02. Guidance for 2021 includes revenue of $589 million to $593 million (ahead of $561 million consensus) and adjusted EPS loss of -$0.08 to -$0.09 (in line with -$0.09 consensus). This is another situation where the numbers are terrific but investors likely want more in terms of forward guidance, especially considering that implied guidance for the second half of 2021 is quite low (low 30% growth rate). That likely sets Cloudflare up for ample room to exceed expectations (it’s a fun game isn’t it?). Management will host an investor day today and give a lot more details on the future product roadmap and where they see the biggest potential for Cloudflare to grow. Barring any major news releases out of that event, my suspicion is that Cloudflare’s upside in the near term may be limited. Longer term, I do think the trend is up. In terms of how we manage this position, my thought is to go ahead and sell a quarter of our position for a gain of roughly 142% (in six months) and let the rest ride for now. SELL A QUARTER, HOLD REST
We jumped into Nevro (NVRO) in September and are up around 26% since, with the stock trading right near all-time highs. This looks like a good time to book the gain. I think this is a good company (it is a pure-play neuromodulation company focused on treating chronic pain) and a stock we’ll likely come back to as growth should be particularly strong in 2022 and the following years (20% plus or minus). My concern is that in the nearer term, while there should be a nice recovery coming out of Covid-19, there just won’t be enough juice to get the stock moving materially higher as the company has some competitive threats, reimbursement work and data dumps to get through before things get really exciting. As always when we sell a stock that we still like there’s the possibility it is a mistake. Therefore, if you are in NVRO and would prefer to hold on I think that is a perfectly fine decision. SELL