Datadog (DDOG) Drops After Q2 Results
This was undoubtedly one of the most disappointing earnings reactions over the last two weeks. This morning Datadog (DDOG) reported Q2 results that beat on both the top and bottom lines. Revenue rose 25.3% to $509 million (a nearly $8 million beat) while EPS of $0.36 beat by $0.08. But shares fell on the day and have closed down around 16%. The main reason is that management issued full-year 2023 guidance of $2.055 billion that fell below expectations (and just a tick below prior guidance of $2.09 billion) as management continues to be conservative given customers are looking at IT spending very carefully these days. The term “optimization” was spoken a zillion times on the conference call, referencing customers trying to get the max benefit from each dollar spent on IT. While the macro (a term we’re learning to hate) is clearly causing some challenges the big picture is that Datadog still appears to be on the right track when it comes to stabilizing the business. Revenue may be in the low 20% range this year (though there is upside to guidance) and is poised to reaccelerate a few points into 2024. And on the profitability front, management raised guidance to $395 million (a $45 million increase). We started with a half-sized position and, at the moment, I’m not backing down from DDOG. Yes, we need a few things to fall into place with the broad market for the stock to work again. But listen, we were expecting a pullback after a heck of a run in June and July so now that it’s here let’s not act surprised. Sticking with buy a half for now but reserve the right to change quickly if this broad market pullback turns into something different. BUY HALF
