Nasdaq Bear Market: One stock you’ll wish you could buy on the dip

The tech bear market is in full swing with Nasdaq Composite The index is down more than 31% since the start of the year. Many technology stocks fell more, including datadog (NASDAQ: DDOG)Which fell by 51% in 2022.

The need to monitor and monitor application performance has been omnipresent as companies have adopted more digital platforms. This is a big industry, and datadog (NASDAQ: DDOG) He is the best player in this space, according to GartnerMagic Quadrant. As a leading company, this company has experienced incredible accreditation across the board. I took advantage of this recent drop and bought more shares. Here’s why you should too.Someone seriously looking at their tablets.

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Industry leader in $53 billion

To say that the monitoring and performance monitoring space is large and growing is an understatement. In fact, it’s huge: Datadog thinks its current opportunity is $42 billion, and is expected to rise to $53 billion by 2025. Talk about fishing in a stocked pond.

More importantly, Datadog seems poised to take advantage of this for a number of reasons. The first is the company’s conversion costs. Migrating all of a company’s data and operations to another platform can be painful and costly once you have adopted multiple tools from Datadog, which means the company will retain much of its existing customer base. With over 21,000 customers – 2,420 of whom spend $100,000 a year – this gives Datadog a solid foundation. Additionally, the company has seen a steady shift in the mid-to-low single digits, demonstrating that these switching costs are indeed playing into the company’s favour.

The second reason why Datadog can take advantage of this market is because of its history of innovating its peers. The company continues to offer new solutions to its customers, making its product range of more than 30 tools increasingly valuable. This year alone, the company has already launched six new tools with plans to release more by the end of the year.

How can she do this? flowing cash. With $354 million in free cash flow on a 12-month basis, the company generates more cash than its major competitors – Dynatrace And the fresh leftovers — sum. The company uses this cash to develop best-in-class products, making its value proposition the most attractive in the industry.

This big dog is spreading amazing growth

This is strong Competitive Advantages The importance of its services led to a healthy and stable demand. Even during the second quarter, when companies saw tighter budgets and higher inflation, Datadog reported an incredible adoption. Second-quarter revenue increased 74% year-over-year to $406 million, while the number of customers spending more than $100.00 annually increased 54% over the same period.

Datadog also impresses with its ability to expand its relationship with customers — 14% of all customers use six or more products as of last quarter and 37% use four or more products. Just two years ago, there were no customers using six or more products, and only 15% were using four or more products. This trend has been a huge driver of its premium expansion in the top line, and as the company continues to roll out new best-in-class tools, it’s likely to become more mainstream.

Datadog is not only improving its top line but also improving its profitability. Over the past six months, Datadog’s free cash flow It reached $190 million, which is a margin of 25% and a year-over-year increase of 119%. Additionally, while generating net income isn’t Datadog’s current focus, this has gone up too. Net income for the past six months was $4.9 million, an increase of $22.4 million over the same period last year.

You get what you pay for

Given how powerful this business is, the shares are trading at an amazing premium. Paying 20 times sales and 79 times free cash flow is costly for any business. Despite this, Datadog looks like one of the highest quality software stock In today’s market, due to cash generation, deepening customer relationships, and competitive advantages. When you find quality work, you often have to pay a premium, and that’s definitely the case with Datadog.

In light of this, Datadog is a stock that tech investors should own. Stocks can rise above these lowsThis is why I recently bought more shares on a dip.

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Jimmy Loko He has positions at Datadog. Motley Fool has positions with and recommends Datadog. The Motley Fool recommends Gartner and New Relic. Motley Fool has a profile Disclosure Policy.

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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