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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.

Shares of this portfolio stock have taken a hit lately on news of a secondary offering of around $170 million, followed by the pricing announcement

The market continues to react to the good news on the vaccine front, but growth stocks continue to suffer. Today we’re taking another incremental step to wind down some of our exposure.

Following up on today’s weekly earnings review we have a few positions we’re going to step aside from. Big picture, I like the way the market is shaping up. However, we have a portfolio flush with positions and while most are looking good to great we have a few that are slipping, and some that lack near-term catalysts yet have a modest profit. It feels like a good time to lighten up. Here’s what I suggest.

We’ve been enjoying a crazy-strong market in many growth stocks lately, which has padded our paper gains in many of those positions. Today we’re going to step off the gas a little, book a few modest profits and step aside from some positions that haven’t done a lot lately.

**NOTE: Due to time constraints from the Cabot Wealth Summit, the Cabot Early Opportunities issue scheduled for Wednesday, August 18, 2021 will instead be published on Thursday August 19.**
It’s been a busy earnings season and we have a lot to cover. I don’t have reports on every company that has released results just yet, but I have most of them.

Sprout Social (SPT) reported Q3 results yesterday that beat expectations. Revenue was up 46% to $49.1 million versus expected growth of 42%. Adjusted EPS was -$0.03 versus $0.01 expected. Customer count grew 20% to 30,705, customers spending over $10K in ARR grew 57% to 4,380, and customers spending over $50K grew 98% to 478.

But the market is rising back faster than it fell. The solid economy and low interest rates are continuing to drive stocks higher, for now.

I have a number of notes and recommended actions regarding several of our stocks that have made earnings-related moves recently.

With a portfolio flush with positions and the market having gotten a little choppy lately we’re going to move incrementally more conservative today.

In today’s Issue of Cabot Early Opportunities I mistakenly left off two stocks in our portfolio.

It is likely that a pullback in the market, as measured by the indexes, is increasingly likely in the near term. But that would be healthy and welcome. And it would set up things better for the rest of the year.

This has been about as ugly a couple of weeks in the market as you will ever see. On a closing basis, the market hit a low on February 28 and was down 12.5% from the February 19 highs. By total points lost, it was the fastest market correction in history.

We’ve seen a big improvement in the way many growth and early-stage stocks are acting over the last two weeks. Many of our stocks that sold off in March have been gaining some altitude back, and many of those that were acting well continue to do so.

The market has been a little iffy over the last five or so sessions. This action, coming on the back of great earnings from mega cap tech stocks last week, but not great reactions, suggests a more conservative stance is appropriate right now for some of our high-growth names.

Here we are in an up leg of a bull market that began three months ago. Since early October the S&P 500 has climbed 14%. With trade issues and Iran out of the headlines, the strong economy and low interest rates are driving stocks higher with technology leading the charge.

Yesterday was a bloodbath for growth stocks as concerns of rising rates and high valuations continue to put pressure on these types of stocks. Earnings season has also been a disaster for many growth stocks as “sell the news” has been the trend. Part of me thinks there is programmatic trading going on here as a negative reaction has just become too consistent. But still, overall, the positive momentum from April has been wiped out here in May for many players.

The market’s relentless march ever higher is being interrupted. What’s going on?

The anticipated market tumult has arrived. The S&P 500 is down over 5% in less than a week. It’s also down over 8% from the high. The high market combined with the mounting risks is finally spooking investors.

The market is down today with the Dow falling 400 points so far. It might get uglier before the day is over.