Datadog is the IBD Stock of the Day for Wednesday, as DDOG stock has formed a handle. Datadog stock is up about 55% this year.
On the stock market today, DDOG rose 2.2% to close at 117.23. Shares surged on a strong earnings report last month. A recent breather for DDOG stock has forged a high handle on a cup base, with a 120.26 buy point.
Further, shares are finding support near DDOG stock's 21-day moving average. DDOG is on IBD Leaderboard.
Earnings Jump
New York-based Datadog sells software that monitors applications running on cloud-computing platforms. Founded in 2010, Datadog's biggest customers are software companies and IT departments.
DDOG stock jumped nearly 30% in trading on Nov. 7, after reporting earnings results and an outlook that beat expectations.
For the quarter ending Sept. 30, Datadog earned 45 cents per share on an adjusted basis, up 95% from a year earlier. Revenue jumped 25% to $548 million. The numbers topped estimates for earnings of 34 cents per share and revenue of $525 million, according to FactSet.
Further, Datadog raised its projections for full-year revenue from $2.05 billion to $2.1 billion, based on the midpoint of each given range.
DDOG Stock: Signs Of Slowing Optimizations
Datadog's revenue surged in 2020 and 2021 as companies increased cloud spending, partly in response to the pivot to remote work during the Covid lockdowns. But companies began easing back on software spending last year in response to economic uncertainty.
The trend weighed on DDOG stock, particularly because Datadog charges companies based on their consumption of its products. Shares fell by nearly 60% in 2022.
This year has been far better for Datadog stock, with some ups and downs. For instance, Datadog stock fell 17% on Aug. 8 on second-quarter results that included a weaker-than-expected sales outlook.
However, Datadog leaders told analysts on the company's third-quarter earnings call that trends for software spending are improving.
"We are seeing signs that the cloud optimization activity from some of our customers may be moderating," Datadog Chief Executive Olivier Pomel said on the company's earnings call.
Further, a recent survey by analysts at Stifel found that about 38% of Datadog customers were looking to optimize spending, vs. 50% six months ago. Stifel analyst Brad Reback upgraded the stock to buy, from hold.
"We believe Datadog can leverage net new customer acquisitions, grow its wallet share among existing users, and drive increased penetration among international markets to sustain a healthy double-digit top-line growth profile and demonstrate improving profitability in the coming years," Reback wrote in a Dec. 6 note.
DDOG Stock: Enterprise Software Leader
DDOG shares are trading well above the 50-day moving average. A previous buy point of 118.02 could act as an early entry point.
Meanwhile, DDOG stock ranks first among 127 stocks in IBD's software-enterprise industry group, according to IBD Stock Checkup.
DDOG stock has a best-possible IBD Composite Rating of 99. The score combines five separate proprietary ratings into one rating — with the best growth stocks scoring above 90.
Datadog also has an IBD Relative Strength Rating of 94 out of 99. The Relative Strength Rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks. The best growth stocks typically have RS Ratings of at least 80.
