Yahoo Finance Why Datadog (DDOG) Stock Is Down Today
What Happened:
Shares of cloud monitoring software company Datadog (NASDAQ:DDOG) fell 7.8% in the afternoon session after Reuters reported that the company was named one of the potential acquirers of Gitlab. According to the report, Gitlab is working with investment bankers on a potential sale after attracting acquisition interests. It is worth highlighting that Alphabet (Google) has a 22.2% voting stake in GitLab and is also considered a potential buyer.
The share price of acquirers tends to fall because of the potential for overpayment, integration risks, and potential dilution of existing shareholders or higher debt/interest if the company needs to raise equity/debt capital to fund the deal. In general, the market doesn't like uncertainty, and large M&A introduces uncertainty.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Datadog? Access our full analysis report here, it's free.
What is the market telling us:
Datadog's shares are very volatile and over the last year have had 11 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 8 months ago, when the stock gained 22.4% on the news that the company reported an impressive "beat and raise" quarter. Third quarter results blew past Wall Street's expectations for revenue, non-GAAP operating profit and earnings per share. We were also impressed by Datadog's significant improvement in new large contract wins, which helped contribute to the revenue beat. In addition, gross margin improved, and the company continued to generate positive cash flow. Overall, it was a fantastic quarter that should have shareholders cheering.
Datadog is up 5.9% since the beginning of the year, but at $122.02 per share it is still trading 10.4% below its 52-week high of $136.15 from February 2024. Investors who bought $1,000 worth of Datadog's shares at the IPO in September 2019 would now be looking at an investment worth $3,247.
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