Stanley Druckenmiller, net worth $6.4 billion, is widely considered one of the world’s best investors. His biggest claim to fame is the fact that in its 30 years of operation, Druckenmiller’s hedge fund Duquesne Capital never had a down year.
Druckenmiller closed his hedge fund after the global financial crisis and opened a smaller, more intimate family office. His insights are still in high demand, and he makes regular business news appearances to offer his perspective on current financial events.
The economic uncertainty that defined 2022 put Druckenmiller in the spotlight. He was one of the few hedge fund managers that survived – even thrived – during the dot.com bust and the global financial crisis, so anxious investors are interested in how he trades the bear market.
One Druckenmiller stock is getting particular attention because of its potential to double in 2023. In the third quarter, Druckenmiller added a significant amount of Datadog stock to his portfolio. Those who follow his trades wonder whether Datadog stock is still a buy.
What Is Datadog Used For?
The world has gone digital, and most organizations are leveraging the convenience and security of cloud computing. The options for cloud-based infrastructure, applications, and third-party services are increasing rapidly as developers and innovators create new, more effective methods of managing business functions.
The trouble with adopting cutting-edge technology to operate a business is that the number of systems that need to be monitored can get out of hand quickly. It’s nearly impossible to detect issues in real time when dozens of applications are in use. The longer it takes to identify problems, the greater the likelihood of a negative impact on business functions.
Datadog created a best-in-class solution for this issue – a dashboard that pulls in details from all cloud applications in use so that they can be monitored simultaneously. This includes metrics, logs, and end-to-end traces, so businesses can keep systems secure, minimize downtime, and ultimately provide the sort of exceptional customer experience that ensures repeat sales.
Why Did Datadog Stock Go Down?
Datadog was founded in 2010 and went public in September 2019 at $27 per share. On the first day of trading, share prices increased by 39 percent, putting the company’s total value at more than $10 billion. Datadog stock peaked at more than $190 per share in November 2021. Then the bottom fell out of the tech market.
The Nasdaq is home to most growing tech companies, including Datadog. Tech stocks started to drop at the beginning of 2022, which pushed the Nasdaq into bear market territory months before the S&P 500 made the bear market official.
Year-to-date, the Nasdaq is down more than 30 percent, primarily because of the overrepresentation of tech stocks on the index. Some have declined by 70 percent or more, including:
Lyft – down approximately 75 percent year-to-date
Peloton – down approximately 70 percent year-to-date
Upstart – down approximately 90 percent year-to-date
Datadog stock dropped more than half its value in 2022 as investors worried about high inflation, rising interest rates, and a looming recession. They traded their growth stocks for stable alternatives like energy and consumer staples, whether or not they had reason to believe any individual company was in trouble.
That leaves investors who want to take advantage of low-priced growth stocks with a decision. Is now the right time to buy Datadog stock? In other words, will Datadog recover from the market downturn, or is it destined to drift lower over the next few years?
Is Datadog Stock A Buy?
Stanley Druckenmiller made it clear that he believes Datadog stock is a buy. In recent months, he increased his position in Datadog by $82 million – a total of 790,000 shares. Why is Druckenmiller so confident that Datadog stock will go up?
As it turns out, there are plenty of reasons to be optimistic. The biggest is that the company offers a product that is in high demand, and Datadog is the clear industry leader. To date, no other tech company has succeeded in duplicating the power, accuracy, and convenience of Datadog’s dashboard.
Other factors that likely influenced Druckenmiller’s decision to buy Datadog stock can be found in the company’s third-quarter earnings report. Highlights include:
Revenue – $436.5 million (a year-over-year increase of 61 percent)
GAAP Operating Loss – $(31.3) million
Non-GAAP Operating Income – $74.8 million
Operating Cash Flow – $83.6 million
Free Cash Flow – $67.1 million
Cash, Cash Equivalents – $1.8 billion (as of September 30, 2022)
Any operating loss is sure to spook nervous investors, but the amount is reasonable given the company’s growth trajectory. More importantly, the rest of Datadog’s financials look good, and the number of large clients (Annual Recurring Revenue, ARR, of $100,000+) increased 44 percent year-over-year. Datadog now has approximately 2,600 clients that fit into that category.
Finally, it is worth noting that Datadog’s 2021 revenue totaled approximately $1 billion, and leaders expect 2022 to come in around $1.65 billion. That’s a respectable number, but it is just a drop in the bucket when the total addressable market (TAM) is considered.
Datadog’s leaders estimate that the TAM will reach $62 billion within the next four years, and there is every reason to believe that Datadog will capture a substantial share of that market. Overall, that makes Datadog stock a buy.