Shares of Datadog Inc., a monitoring and analytics platform for developers, IT operators, and business users, experienced a downturn in after-hours trading on Thursday. This followed Amazon.com Inc.’s disclosure of a further slowdown in its AWS cloud-computing unit during its earnings call, despite slightly better-than-expected sales for the unit. Datadog’s stock had originally surged due to Microsoft Corp’s positive commentary about its Azure cloud-computing business, but it was down 4% in Thursday’s after-hours trading, after gaining 1.4% in Thursday’s regular session and seeing a 10.5% rise in Wednesday trading. Datadog’s growth prospects are tied closely to the expansion of the cloud-computing industry, which has experienced a recent slowdown.
Cloud-computing, which involves the delivery of computing services such as servers, storage, databases, software, and networking over the internet, has become increasingly important for both large and small companies as it allows for reduced operating costs and easier scalability of projects. Amazon’s AWS, Microsoft’s Azure, and Alphabet’s Google Cloud are some of the largest cloud computing companies in the world.
Datadog recently released its Q4 2021 financial results, which showed strong revenue growth and a successful run in 2021. The company generated $422.3 million in revenue, up 65% from the same period a year earlier, and beat the projected earnings per share by 37.50%. The stock’s performance, however, has not been reflective of these financial results, as slowing demand in the cloud-computing industry has curtailed its growth prospects.
AWS, Amazon’s cloud-computing unit which hosts websites like Airbnb, Netflix, and iRobot, has seen a slowdown in sales, particularly in Q4 of 2021. Though the unit reported better-than-expected sales figures, Amazon’s earnings call revealed a continued slowdown in growth, leaving investors concerned about the implications of these trends on the cloud-computing industry as a whole.
This cloud slowdown has had a significant impact on Datadog’s stock prices, wiping out the gains it experienced on the heels of Microsoft’s upbeat outlook for its Azure cloud-computing business. Datadog has relied heavily on the growth of the cloud-computing industry to drive sales and expansion, particularly as companies migrate their applications to the cloud and require monitoring and analytics services to manage them.
In spite of this sector slowdown, market research firm Gartner forecasts a 25.1% compound annual growth rate for cloud infrastructure and platform services between 2021 and 2025, predicting that spending on these services will reach $271 billion globally by 2025. Given the size of the market and its potential growth, companies like Datadog have an opportunity to capture significant revenue as the industry rebounds and continues to expand.
Analysts are monitoring the AWS performance and the overall cloud-computing industry to see how it will impact companies like Datadog. The company operates in various segments, including monitoring, logging, and security, but its key offering is its cloud observability platform. As the cloud-computing industry recovers from its slowdown, Datadog’s prospects for growth remain promising.
In addition to its reliance on the cloud-computing industry, Datadog may face other headwinds. The company’s high stock valuation may deter potential investors, and the growing competition from large corporations like Amazon, Google, and Microsoft, which also offer monitoring and analytics services, could pose a significant competitive threat. Moreover, the economic impact of the ongoing war between Russia and Ukraine could have far-reaching consequences for businesses in various sectors, and technology companies like Datadog may not be immune to such uncertainties.
Nevertheless, Datadog continues to grow its user base and has a solid reputation in the market for delivering excellent customer service and a user-friendly platform. With the predicted growth of the cloud-computing industry, the odds of an eventual rebound for the company’s stock price remain high. It may yet prove to be a hidden gem in the tech sector.
