Is Datadog a buy?

It’s time to break down another software name. Here is the breakdown on $DDOG, otherwise known as Datadog.

Current Price: $114.90

52/Wk High: $118.13

52/Wk Low: $28.88

Market Cap: $35 Billion

Read below for the breakdown!

Datadog ($DDOG) is a major software and IT company that monitors and collects analytics data for major companies in order to help customers increase and or help the user experience.

Taking a look at the past year, Datadog has seen significant growth due to the digital revolution that seems to be only getting started. In fact, Datadog ($DDOG) stock has rallied 151% in just the past year alone.

Datadog’s customer list is also impressive, boasting names such as Samsung, Sonos, Comcast, Draftkings, Nasdaq, Lenovo, Peloton, The Washington Post, Activision, and many more.

In recent news, throughout Q3 Datadog announced a partnership with Microsoft and extended their partnership with Google, both of which will only further strengthen the company.

Digging into the numbers, Datadog beat Q3 estimates with an EPS of $0.05, better then the EPS consensus estimate of $0.01. For comparison, Datadogs 2019 EPS was $0.00, so EPS continues to improve.

Furthermore, Datadog reported Q3 revenues of $154.7 million, representing a year over year revenue increase of 61%, better than the 2019 Q3 revenues level of $95.9 million.

As for customer growth Datadog reported strong numbers, with customers over $100,000 APR totaling 1,107 in Q3, a big improvement over the 727 just a year ago.

On the downside, Datadog continued to run an operating loss, with the GAAP operating loss totaling $9.3 million along with a GAAP operating margin level totaling -6%.

When it comes to operating income, Datadog reported a non-GAAP operating income level of $13.8 million and non-GAAP operating margin of 9%.

Shifting back to the positives, Datadog did report solid cash flows, with operating cash flow totaling $36.3 million and free cash flow totaling $28.6 million, both of which significantly improved.

Lastly, throughout Q3 Datadog released eight new products and features which significantly increases the company’s offerings to customers.

Overall, management was positive.

“We are pleased with our strong results for the third quarter, which demonstrated continued high growth at scale,” CEO Olivier Pomel said.

Datadog went on to report solid guidance as well. Expecting the following for Q4;

Revenue: $162 million to $164 million

Operating Income: $3 million to $5 million

Rounding out the year, management introduced the following guidance for FY 2020.

Revenue: $588 million to $590 million

Operating Income: $48.5 million to $50.5 million

Shifting into the balance sheet the numbers are strong.

Total Debt: $568 Million

Total Liabilities: $878 Million

Total Assets: $1.814 Billion

Cash & Short Term Inv: $1.495 Billion

On a valuation basis, Datadog does trade at a premium.

Price to Sales: 63.17x

Price to Book: 36.39x

Management has done a solid job but has room for improvement.

Return on Equity: -0.88%

Return on Assets: -0.53%

Return on Invested Capital: -0.63%

Given the numbers the analysts are neutral with a mean price target of $106.30/share, representing a -7.48% downside.

It is also important to note that the high price target is $125.00/share, representing an 8.79% upside, while the low price target is $85.00/share, representing a -26.02% loss.

The big money is quite involved as well, with 69.17% of Datadog being owned by institutions. Top holders include T. Rowe price Associates, The Vanguard Group, and BlackRock Institutional Trust.

On a technical basis, Datadog is bullish. According to the six-month charts the MACD is moving to the upside with significant momentum within a range of 2.62 down to 1.44.

The six-month charts are also indicating an RSI of 64.55 and CCI of 209.29, both of which are on the high end.

In short, Datadog ($DDOG) is a solid software name with so far continual growth, solid partnerships, and a growing industry.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.