Behind major players like Apple (AAPL) and Alphabet/Google, a new collection of entrepreneurs and innovators are building the software, applications, and infrastructure to support these technological changes.
Companies like DataDog (DDOG) and Snowflake (SNOW) have captured the market’s attention because they have succeeded in creating elegant solutions to problems that didn’t exist a decade ago.
Snowflake IPO Even Attracted Berkshire
Snowflake (SNOW) gained a following among Fortune 500 companies after developing an effective method of bringing previously siloed data together. No matter where data is stored, companies can integrate and analyze it through Snowflake’s data management platform without giving up security or risking endless data transfers.
The company grew quickly after its 2012 launch. It spent two years in stealth mode before making its presence known in 2014. By 2020 it was ready for an IPO – and in fact, that IPO was the largest software IPO event in history.
Of particular note was the fact that Warren Buffett chose to invest in Snowflake’s IPO through his holding company, Berkshire Hathaway (BRK.B). Buffett has long stayed away from IPOs in general and tech stocks in particular, so this move inspired confidence in the company throughout the market.
Snowflake: By the Numbers
In its most recent earnings call for the period ending June 30, 2021 – the company’s fiscal second-quarter 2022 – the news was almost entirely good. Product revenues increased 103 percent year-over-year to a total of $255 million, and the net revenue retention rate was a promising 169 percent.
Expansion is key to Snowflake’s ongoing growth, which makes capturing major clients in Europe, the Middle East, Africa, and the Asia-Pacific an especially critical accomplishment. The company’s leaders pointed out that growth in these regions surpassed the company’s overall growth, indicating momentum in nearly every corner of the globe.
40% Of Fortune 500 Companies Choose Snowflake
Now that Snowflake counts more than 200 members of the Fortune 500 as clients, it is focused on growing and deepening relationships. One of the company’s strategies includes the development of services customized to support specific industries.
For the moment, Snowflake specializes in the technology, advertising, financial services, retail and CPG, healthcare and life sciences, media and entertainment, public sector, manufacturing, and education industries, but it plans to create solutions for additional industries over time.
The company’s ongoing success, its comprehensive growth strategy, and the unique nature of its products have made investors optimistic about Snowflake’s future. That has pushed share prices up to a level that many analysts believe is too high.
If everything goes exactly as planned, the stock is trading at an appropriate price. However, any number of things may go wrong – for example, Microsoft (MSFT) and Amazon (AMZN) might create financial or other competitive challenges – and that would stifle future gains, perhaps irrevocably.
At the current price, Snowflake is a buy for the most confident and least risk-averse investors. It may deliver significant returns in coming years. According to analysts estimates it’s fairly valued at $317 per share.
What Does DataDog Do?
DataDog’s contribution to the digital revolution is an advanced platform to monitor just about any cloud-based application. It adds visibility into servers, tools, databases, and similar using a Software as a Service (SaaS) model.
The result is that overseeing cloud infrastructure is no longer a time-consuming multi-step process across multiple platforms. Instead, DataDog’s simple, single-step dashboard brings data together.
The company was founded in 2010, just in time to take advantage of the rapid adoption of cloud services. It has expanded organically, as well as through acquisition. Some of the companies and products integrated into the DataDog organization include Mortar Data, Logmatic, and Madumbo.
DataDog held its IPO in the fall of 2019, and investors were very excited. On its first day of trading, share prices increased by 39 percent, raising $648 million in new capital.
DataDog Net Retention Rates Are Sky High
DataDog (DDOG) announced strong second-quarter 2021 results during its early-August earnings call. Among other wins, revenue increased 67 percent year-over-year for a total of $234 million. That figure also represents a quarter-over-quarter increase of 18 percent, coming in at the top of the range included in previous guidance.
As of June 30, 2021, DataDog counted 1,610 clients in the $100,000 Annual Recurring Revenue (ARR) category. That’s an impressive increase over the 1,015 clients in that category during the same period the previous year, especially because the $100,000+ clients generate around 80 percent of DataDog’s own Annual Recurring Revenue.
Total customers came in at roughly 16,400, as compared to the prior year’s 12,100, and dollar-based net retention rates topped 130 percent.
Those numbers indicate that DataDog is continuing to achieve its goals for growth and expansion, which means good things for shareholders. Since the company began trading publicly, the stock price has gone up by more than 280 percent.
Rapid Growth Expected For DataDog
As DataDog continues to develop new features and capabilities for its core monitoring platform, it is simultaneously creating an advanced security solution to meet the complex demands of current technology-related threats. The combination of these products and services suggests that DataDog will maintain its rapid rate of growth for the foreseeable future.
While many investors are anxious to join what promises to be an exciting ride, some analysts are urging caution. DataDog’s expected growth is already baked into share prices, and if the company runs into any challenges, the stock may sit stagnant for a significant period.
With that in mind, DataDog is a buy for investors who have the fortitude to survive ups and downs without panicking. Buying now may mean a long wait before any significant returns materialize.
Snowflake Vs DataDog Stock: Which Is Best?
Both Snowflake and DataDog are delivering the types of software solutions that organizations of every size want, and both are likely to see impressive growth and increasing profits in the coming months. Whether that will translate into shareholder returns in the short-term remains to be seen, but long-term Snowflake stock and DataDog stock are good bets for portfolios that need a bit more exposure to tech.
In terms of which is best – the answer isn’t straightforward. Both companies face an array of risks that could depress share price increases. When the analysts weigh in, they are fairly evenly split between Buy and Hold for both companies, but all things equal, they expect more of an upside with DataDog. That makes DataDog stock a slightly smarter buy than Snowflake stock, but only by a slim margin.
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