Author: AnswerStock

The company has traded above its $27 IPO price since going public.

Last Thursday, the cloud software service Datadog went public at $27 per share. The company first filed to go public in late August with an initial price range of $19 to $22. Company leaders later realized that wasn’t enough, and increased the IPO price. 

That seems to have been a good choice since Datadog’s shares immediately jumped 39% above its IPO price, ending the day at $37.55. This put the company’s market valuation at $10.9 billion. Datadog joins the ranks of Zoom and Crowdstrike, two other companies that went public and earned valuations of over $10 billion. 

There’s a lot of appeal to investing in a company like Datadog. The company provides reliable metrics without the massive spending associated with other industries. Listed below are three reasons Datadog is a good investment.

The company’s services are in demand

Datadog provides cloud monitoring and analytics tools and competes with companies like Amazon, Microsoft, and Cisco. The company provides subscription-based services that help its clients ensure their applications and software are working correctly.

Technology companies like Datadog release quarterly dollar-based net retention rates. If the retention rate is higher than 100%, this means customers are spending more money on services than they were a year earlier. Datadog’s most recent retention rate was 151%, indicating it has a strong base of happy customers. 

Cisco reportedly tried to buy the company

Bloomberg reported that Cisco recently approached Datadog and offered to acquire the company for $7 billion. The company obviously said no, believing it would worth more as a publicly-traded company. (Spoiler alert: They were right.)

If this is true, the fact that Cisco wanted to acquire Datadog before it had a chance to go public says something about the company’s growth prospects.  

Datadog is growing quickly

Originally founded in 2010, Datadog has grown quickly in recent years. The company currently has more than 8,800 customers and its revenue doubled last year to reach $198.1 million. Halfway through 2019, the company’s revenue was already up 79%. 

The company is still in the early stages of its growth. But Datadog’s high customer retention rate and strong overall growth indicate the company should continue to be a solid investment. 

Chewy experienced substantial losses during the second quarter but its growth remains strong. 

Last week, Chewy released its second-quarter earnings report and the results were underwhelming. The company experienced heavy losses during the second quarter and the company’s fiscal guidance was disappointing. 

However, it wasn’t all bad news for Chewy. The company did show a big jump in profitability as well as strong subscriber growth. But ultimately, neither of these factors were enough and shares of Chewy fell more than 6% midday.

What happened during the second quarter?

Chewy is an online retailer for pet care products, an industry that is growing quickly. This growth was clear from Chewy’s second-quarter revenue, which grew more than 42% year over year. The company brought in $1.15 billion in revenue, beating the guidance range of $1.12 billion to $1.14 billion.

The company’s gross margin was up by 23% thanks to improved product margins. And best of all, Chewy’s active subscriber base grew 39% to reach 12 million customers. Not only that, but each active subscriber spent an average of $352, which is up 10% from a year earlier.

But these impressive gains were overshadowed by the company’s heavy second-quarter losses. Here is a breakdown of each of these losses:

Metric	Spending in Q2	Year over year change
Selling, administrative, and general expenses	$355 million	Up 75%
Advertising and marketing expenses	$111 million	Up 24%
Total operating expenses	$335 million	Up 55%
Total operating losses	$82.9 million	Up 32%

Chewy did raise its full-year fiscal 2020 guidance but not by much. Previously, the company expected its full-year revenue to fall between $4.675 billion and $4.75 billion. After the earnings report, Chewy increased this figure to between $4.75 billion and $4.80 billion. 

What’s next for Chewy? 

Analysts are pretty evenly split when it comes to Chewy but on Monday, Nomura Instinet upgraded the company from neutral to buy. Analyst Mark Kelley said that the concerns over Chewy’s earnings report are largely overstated. Kelly added, “…we remain confident that the core business continues to perform.”

In 2009, pet owners spent a total of $45.53 billion on their pets. In 2019, that number is expected to reach $75.38 billion. People love to spend money on their pets and Chewy has a unique business model. 

The company continues to innovate and find new ways to help its subscribers, like when it launched Chewy Pharmacy. This online tool makes it easier for pet owners to manage their pet’s medications. If Chewy can get a handle on its heavy losses and continue to reach new subscribers, the company should be well poised for future growth.

A Bernstein analyst believes Netflix shares will hit bottom at $230 per share.

Shares of Netflix have continued their steady descent over the past couple of months. Investor confidence was shaken after Netflix released a disappointing earnings report in July. 

The earnings report showed that during the second quarter, the company lost U.S. subscribers and that its international subscriber growth slowed. Since then, the stock has fallen by nearly 20%. 

And increasingly, investors are asking when the shares will bottom out. But according to one Bernstein analyst, this could happen sooner rather than later.

Analyst Todd Juenger acknowledged that it’s hard to set a baseline for this since the company has experienced “several transformations in the last decade.” But according to his research, Juenger estimated that the “floor price” for Netflix stock is $230 per share. 

Here’s why Netflix is still a good buy

Anytime a stock drops significantly, people will wonder if this is a good opportunity to buy in or if it’s a sign that the company is going downhill. But when it comes to Netflix, Juenger seemed confident that the company will hang onto its pricing power.

And this is not a lone opinion when it comes to Netflix. Out of the 31 analysts reviewing the stock, 25 give it a buy rating. And the average price target is $412.89, which represents an upside of 44%. Here are a couple of reasons why Netflix is still a good investment.

Netflix continues to improve its content lineup

This week, Netflix announced it had secured the global streaming rights for the iconic television series Seinfeld. The company purchased the right from Sony Pictures Television. 

Starting in 2021, Netflix will have the right to stream 150 episodes of Seinfeld to its subscribers. This is an essential next step for Netflix since the company recently lost Friends and The Office, two of its most popular television series. 

The streaming wars are overblown

Finally, Netflix is still a good investment and the streaming wars have been mostly overblown. Yes, there is more competition now but Netflix is a household name. So it seems unlikely that consumers will just entirely abandon it once new services launch.

As more options become available, it seems likely that consumers will invest in multiple streaming services. And Netflix appeals to a much broader audience than both Apple and Disney.

Shares of Roku fell more than 20% after Comcast announced it’s giving away a free streaming device.

What goes up must come down. Roku stock has been on a roll this year and its shares are up more than 300% year to date. This is why it was a surprise to many people when the company’s stock plummeted on Wednesday.

The stock fell after Comcast announced it would give away a free streaming device to its online-only subscribers. Then Facebook announced it is launching a tool that can stream content. 

Roku investors did not react favorably to the news that the company may have to deal with increased competition in the coming months. The company’s shares dropped more than 20% by the end of the day. 

The Streaming Wars Continue

This year, streaming services seem to have become the new battleground. Netflix has taken the biggest hit, with investors becoming concerned that the company can’t compete with new services offered by Disney and Apple.

This week, it was Roku’s turn, and on Wednesday, the company got hit by the perfect news storm. First, Comcast announced it would offer a free streaming TV box called the Xfinity Flex to its internet-only subscribers. 

The Xfinity Flex originally cost $5 a month. This connected streaming device provides content from Netflix and Amazon Prime, making it a direct competitor of Roku. And the day before, Comcast had announced it is launching its own streaming service called Peacock.

Then Facebook announced it’s launching Portal TV, a device that connects to a user’s TV. The device comes with a microphone and camera and allows users to make video calls and stream content. Facebook plans to release the device on Nov. 5. 

Should Roku Investors be Worried?

Comcast does pose a slight risk to Roku but the effect will likely be minimal. Roku is just too popular and it’s already used on over 41 million devices in the U.S. It seems very unlikely that many Roku customers will switch to Comcast just to save $5 a month.

Comcast doesn’t have the same following Roku does and a free streaming device won’t get them there. And let’s not forget, even after the shares dropped Roku is still up 323% this year.

The company’s shares fell more than 10% in premarket trading.

On Wednesday, Wall Street analysts turned on FedEx after the company failed to deliver on its latest earnings report. Analysts from four different firms downgraded the stock after learning it missed its first-quarter estimates. 

A Deutsche Bank analyst downgraded the stock from buy to hold, stating that the problem is due to more than just weak financials. Analyst Amit Mehrotra said that in addition to “very weak” financials, it’s concerning how little company management acknowledged these shortcomings. 

For its part, FedEx management blamed the earnings miss on Amazon, trade war concerns, and foreign business issues. Let’s have a closer look at the earnings report.

Where did FedEx go wrong?

During the fiscal first quarter, Wall Street was expecting FedEx’s earnings to be down slightly. Analysts just didn’t expect them to fall quite as far as they did. 

Previous estimates had FedEx reporting earnings of $3.20 per share and revenue of $17.14 billion. Instead, earnings came to $3.05 per share and revenue was $17.05 billion. 

Not only that, FedEx lowered its full-year guidance. The company now expects full-year earnings to fall between $10 and $12 per share, falling short of its previous target of $14.55.

FedEx CEO Fred Smith blamed the earnings miss on lower demand due to trade war concerns and global economic weakness. Smith also said the shortfall was partially due to the loss of a “large customer,” which most people presume to be Amazon. 

Earlier this year, FedEx chose not to renew its ground shipping contract with the e-commerce company. This did reduce the company’s annual revenue by $1 billion, though FedEx should easily be able to recoup those losses. 

How Will FedEx Bounce Back?

To deal with the decline in revenue, FedEx plans to cut costs and scale back its air delivery network after the holiday season is over. The company also plans to raise its shipping rates by an average of 4.9% starting Jan. 6. And Smith said the company is looking for other partnerships to replace its contract with Amazon.

Overall, analysts had been expecting a few losses but they didn’t expect the earnings report to be quite so grim. FedEx is in a period of transition as it works to build out its European network and streamline its services in the U.S. The company will most likely be able to rebound from this but it could take a while. 

Will Home Depot’s massive investments limit the company going forward?

Generally, business investments are seen as a positive but not everyone is impressed by Home Depot’s massive investment plan. On Tuesday, the company was downgraded by Guggenheim out of fear that its ongoing investments could minimize the return on shares.

According to analyst Steven Forbes, Home Depot launched a large expansion plan in 2017. This $5.4 billion plan was aimed at improving the company’s stores, supply chain, and its digital presence. And while it has been mostly successful, some of this spending is being pushed into 2020 which could prevent margin expansion.

Forbes believes that these ongoing expenses will affect EBIT margins by 20 to 40 points. He lowered Home Depot’s rating from buy to neutral and removed the $230 price target. 

Things that are going well for Home Depot

2019 has been a good year for Home Depot. The company’s shares are up 33% year to date and most analysts are positive when it comes to the stock. Home Depot managed to rebound from a difficult second-quarter earnings report in August. 

And the company continues to improve its stores, digital presence, and the overall customer experience. Home Depot has done a lot to remove the friction from the buying process and its customer satisfaction increased as a result.

Home Depot followed in the footsteps of other successful retailers by making it easier for customers to order items online and pick them up at the store. The company did this by installing automated pickup lockers in 1,100 of its store locations. 

The company also made improvements on the front end of many of its stores so customers can get in and out with more ease. Home Depot also added digital price tags to many of its items. This allows customers to view product ratings before purchasing an item.

The bottom line on Home Depot

Home Depot is investing heavily in growth and this could affect its EBIT margins going forward. But clearly, Home Depot’s investments are paying off and the company’s fundamentals are strong. The company is focusing on creating an omnichannel experience, which is exactly what retail stores need to do to capture market share.

It’s impossible to predict exactly what will happen and Home Depot could be affected by many other headwinds outside of its control. But at this point, Home Depot seems to be a solid investment going forward.