Options Corner: Earnings Disconnect Delivers An Unexpected Discount For Datadog
With uncertainty representing one of the main motifs of 2025, a positive earnings report alone isn't enough to guarantee upside for publicly traded enterprises. Observability service Datadog Inc (NASDAQ:DDOG), which focuses on cloud-scale applications, got the short end of the stick recently. Despite delivering strong results, investors appeared to have viability concerns due to shifting sector dynamics. As such, DDOG stock initially gapped higher to start the Thursday session, only to decline roughly 4% in the afternoon hours.
For the second quarter of fiscal 2025, Datadog posted earnings per share of 46 cents, representing a positive surprise of 12.2% over the analysts' consensus view of 42 cents. In the year-ago quarter, earnings landed at 53 cents per share. On the top line, the company generated $826.76 million in sales, up 4.54% against the estimate calling for $819.47 million. One year ago, the tally was $645.28 million, thus representing over 28% growth.
Adding to the positive sentiment, management raised its fiscal 2025 revenue outlook to $3.312 billion to $3.322 billion. Previously, the guidance was set in a range between $3.215 billion and $3.235 billion. Even better, the latest forecast exceeded the consensus estimate of $3.236 billion.
Initially, the results sent DDOG stock dramatically higher, with Thursday's opening price clocking in at $148, 8% above the midweek session's close. However, DDOG quickly succumbed to volatility. Some of the red ink could be due to concerning details, such as an operating loss of $35.5 million. In contrast, the year-ago quarter saw operating income of $12.6 million.
Still, the bulk of concerns could be due to OpenAI. Last month, Guggenheim analysts downgraded DDOG stock to Sell from Neutral and cut its price target to $105. They anticipate that OpenAI will reduce its use of Datadog's services in favor of cheaper, internally managed observability tools.
Admittedly, that wouldn't be an encouraging development. At the same time, 28% growth in a maturing cloud-software sector is a huge positive. What's more, given the lack of overt disclosures and caveats, this growth appears organic, with minimal dependence on non-recurring events or gimmicks.
Why DDOG Stock Empirically May Deserve the ‘GARP' Label
Given the strong earnings results and that DDOG stock initially popped higher, you could arrive ...
