Datadog and Tesla have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – November 8, 2023 – Zacks Equity Research shares Datadog DDOG as the Bull of the Day and Tesla’s TSLA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Goodyear GT, TripAdvisor TRIP and Viper Energy Partners VNOM.

Here is a synopsis of all five stocks:

Bull of the Day:

Datadog, a data analytics company that makes tools for monitoring infrastructure and application performance, delivered a big beat-and-raise quarter on November 7 that caught a lot of investors off-guard.

As I write this on Tuesday morning, shares are trading 30% higher, approaching levels not seen since their gap down from $106 after an August earnings disappointment.

It appears DDOG is finally out of the dog house. And while the stock is a Zacks #2 Rank as type, I expect it to move into the upper deck soon after all the upward estimate revisions from analysts find their way into the Zacks Rank daily calculus.

Why Did the Street Get It Wrong?

There was a lot of pessimism going into this Q3 report.

And I tried to take advantage of it for my TAZR Trader group. On October 16, I published a special report for Zacks Confidential members titled “State of Threat: Cyber Crime 3.0” where I highlighted the evolving sophistication of global threat actors wreaking havoc for all kinds of companies, including most recently MGM Resorts, 23andMe, and Flagstar Bank of Michigan.

I explained how “ransom ware” attacks just went ICBM with state-sponsored infrastructure and weapons.

Here’s what I wrote when I bought DDOG for my TAZR Trader group the previous week…

TAZR Portfolio is buying a starter position in Datadog (DDOG) between $85 and $90. We would add to this Zacks #1 Rank on any drop after earnings 11/7.

While DDOG is largely a data monitoring and analytics platform, Piper Sandler recently made it one of their top 5 cybersecurity picks as an end-to-end observability and cloud security platform. The Piper team has a price target for DDOG shares at $115, implying over 25% potential upside.

Data is the gold of this new digital age and we need look no further than the recent acquisition of Splunk by Cisco to see what enterprises are willing to invest to stay ahead.

Baillie Gifford Stakes a Big DDOG Claim

One of my favorite institutional Technology investors, Baillie Gifford, increased their Datadog position by 70% in Q2 to make them the 3rd largest holder, behind Vanguard and BlackRock, with over 10 million shares.

If you’ve seen my pieces on those Scottish Warlords of Edinburgh, you know they are buy and hold fanatics who do deep research, especially in novel technology platforms like Tesla (TSLA).

So while we can see they would have been buying DDOG shares between $60 and $90 in Q2, I don’t expect to see that they turned sellers in Q3. In fact, they were probably buying again on the earnings August gap down.

Slowing Revenue Growth Priced-In

Bank of America is not as optimistic as Piper and downgraded shares to Neutral earlier this week, citing demand checks and scenario analysis suggesting downside revenue risk. They also lowered their price target to $105 from $123.

Technically, the stock has held up well since the gap down to $84 after August earnings, marking a higher low and potentially gearing up for a run to fill the gap down from $105.

And even the BofA downgrade has barely put a dent. Their “neutral” thesis and revenue concern centers around Datadog’s “best-of-breed” premium service offering as being “too expensive” given potential competition. This might explain their 35% profit growth this year.

“Datadog is widely perceived to be a premium offering, which could drive the end-market to lower cost competitors, native hyperscaler offerings, and/or open-source alternatives, which could constrain revenue, RPO and billings growth,” according to the BofA report.

The analysts now expect the software vendor to report 2024 revenue of $2.40 billion, down from its prior outlook of $2.57 billion. This makes DDOG trade at over 10x sales, but it offers unique solutions that should see 20%+ demand growth.

Remember, the Fortune 1000 needs all of these top “operators” to defend specific perimeters in combination.

(end of excerpt from my 10/16 Zacks Confidential report “State of Threat: Cyber Crime 3.0”)

If you want a copy of that report, just email Ultimate@Zacks.com and tell ’em Cooker sent you.

Out of the Doghouse

Even days before the DDOG Q3 report, Stifel analysts were subdued about what to expect in their earnings preview…

“As we have said since our downgrade last quarter, 2024 sellside expectations (~22%) remain too high. While buyside expectations are muted into the print, we do not envision multiple expansion until revenue growth stabilizes and/or potential Fed rate cuts become clearer.”

That ~22% is referring to the revenue consensus for next year. And Stifel analysts could still be right that current estimates for the company to cross $2.5 billion in 2024 are too high.

But right now, all eyes are on the notable Q3 revenue beat and lift in guidance for this year.

Q3 revenue came in at $547.5 million, up over 25% from $436.5 million a year before and ahead of the $524M consensus.

Even better, for Q4 Datadog anticipates $564 million to $568 million in revenue along with 42 cents to 44 cents in adjusted earnings per share. Analysts were looking for $545 million and 35 cents, respectively.

The company’s “beat-and-raise” was driven by customer demand for better security solutions amid increasing cybersecurity threats.

Datadog management lifted their full-year 2023 revenue forecast to the range of $2.10-$2.11 billion, from a prior $2.05-$2.06 billion.

And they see adjusted (non-GAAP) earnings between $1.52 and $1.54 per share, up from $1.30-$1.34 per share expected earlier.

Datadog’s total number of new and existing customers with annual recurring revenue (ARR) of $100,000 or more rose 20% year-over-year to 3,130.

The Year Ahead

While investors now have renewed optimism in the near term, we still don’t know what 2024 looks like.

But we’ll get a much better idea in the coming days as analysts rework their models and projections for demand and growth. Be sure to check the Zacks Detailed Estimates page for DDOG to see the upward revisions as they filter in.

“Companies across all industries and sizes are building cloud applications and services to deliver positive business outcomes, including more users, higher revenue growth, improved productivity, and cost savings,” said Datadog CEO Olivier Pomel.

In sympathy with Pomel’s outlook, other data-centric operations platforms like Snowflake and MongoDB were up 10-12% Tuesday morning.

And now, DDOG is recognized even more as the go-to hound for cybersecurity.

If Datadog shares have any kind of pullback to fill the gap up from $80, I would be a buyer. But I doubt it gets below Tuesday’s low near $96 so you better move fast.

Disclosure: I own shares of DDOG for the Zacks TAZR Trader portfolio.

Bear of the Day:

Tesla‘s 10 consecutive quarter streak of Wall Street beats snapped as it reported lower-than-expected earnings for the third quarter of 2023.

Based on this report delivered three weeks ago, Wall Street analysts have steadily lowered their growth estimates, pushing TSLA into the cellar of the Zacks Rank.

The electric vehicle (EV) behemoth reported earnings per share of 66 cents for the quarter under review, which declined from the year-ago figure of $1.05 and also missed the Zacks Consensus Estimate of 72 cents.

Throughout the third quarter, Tesla slashed prices on its inventory vehicles and existing models, which have adversely impacted profits. Total revenues came in at $23,350 million, witnessing year-over-year growth of 9%.

The top line, however, fell short of the consensus mark of $24,381 million.

Tesla’s operating margins dipped 964 basis points year over year to 7.6% in the quarter under discussion and also lagged our estimate of 7.9%. The underperformance can be attributed to the high costs involved in scaling up the production of new battery cells, the Cybertruck, and other large projects.

Continued reductions in average selling prices (ASPs) for models also weighed significantly on the margins.

Tesla has been offering discounts and other incentives in the United States to increase affordability and boost deliveries. Notably, all trims of the Model 3/Y vehicles qualify for the full $7,500 federal tax credit under the Inflation Reduction Act in the United States.

Nevertheless, even with these measures, Tesla’s share of the EV market in the United States decreased from 60% in the first quarter to 50% in the third quarter, according to data from Kelley Blue Book.

Management stuck to its target of around 50% growth in deliveries in the foreseeable future. For 2023, it expects deliveries to reach 1.8 million units.

Key Takeaways

Tesla’s third-quarter production totaled 430,488 units (416,800 Model 3/Y, and 13,688 Model S/X), up 18% year over year and surpassing our estimate of 415,645 units. The company delivered 435,059 vehicles, reflecting a year-over-year rise of 27% and topping our estimate of 428,141 units.

The Model 3/Y registered deliveries of 419,074 vehicles, marking year-over-year growth of 29% and outpacing our projection by 7,999 units. Deliveries of the Model S/X totaled 13,688 units, down 31% from the year-ago levels and below our estimate of 17,066 units.

Total automotive revenues of $19,625 million were up 5% year over year and beat our estimate of $21,092 million. The reported figure also included $554 million from the sale of regulatory credits for electric vehicles, which increased 93.7% year over year.

Automotive sales, excluding revenues from leasing and regulatory credits, totaled $18,582 million, missing our projection of $19,949 million on lower-than-expected ASPs.

Automotive gross profit came in at $3,668 million. Automotive gross margin came in at 18.6%, down from 27.9% reported in third-quarter 2022 but topping our forecast of 18.2%. This can be attributed to lower-than-expected cost of automotive sales. The metric came in at 15,957 million, below our projection of 17.256 million.

Energy Generation and Storage revenues came in at $1,599 million in third-quarter 2023, higher than the year-ago quarter’s figure of $1,117 million and beating our estimate of $1,570 million.

Notably, energy storage deployments increased 90% year over year to 4 GWh, thanks to the ramp-up of the Megapack factory in California, but also topped our projection of 3.86 GWh.

Solar deployments, however, declined both on a sequential and yearly basis amid high interest rates and the end of net metering in California. The metric came in at 49 MW, lower than our forecast of 103.8 MW.

Services and Other revenues were $2,166 million, up 31.6% year over year but missing our estimate of $2,351 million. Supercharging, insurance and body shop & part sales drove growth on a year-over-year basis.

Financials

Tesla had cash and cash equivalents of $26,077 million as of Sep 30, 2023, compared with $22,185 million on Dec 31, 2022. Net cash provided by operating activities amounted to $3,308 million in third-quarter 2023. Capital expenditure totaled $2,460 million in the quarter under review.

Tesla generated a free cash flow (“FCF”) of $848 million during the reported quarter, which declined from $3,297 million generated in the year-ago period. Long-term debt and finance leases, net of the current portion, totaled $2,426 million, up from $1,597 million on Dec 31, 2022.

Key Metrics

While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street expectations to determine their next move, some key metrics always offer a more accurate picture of a company’s financial health.

Since these metrics play a crucial role in driving the top- and bottom-line numbers, comparing them with the year-ago numbers and what analysts estimated about them helps investors better project a stock’s price performance.

Here is how Tesla performed in the just reported quarter in terms of the metrics most widely monitored and projected by Wall Street analysts:

Total vehicle deliveries: 435,059 versus 439,208 estimated by seven analysts on average.

Model S/X deliveries: 15,985 compared to the 16,872 average estimate based on five analysts.

Model 3/Y deliveries: 419,074 versus 425,039 estimated by four analysts on average.

Solar deployed: 49 MW compared to the 84.83 MW average estimate based on two analysts.

Storage deployed: 3,980 MWh versus the two-analyst average estimate of 3,926.66 MWh.

Revenues- Energy generation and storage: $1.56 billion versus the eight-analyst average estimate of $1.63 billion. The reported number represents a year-over-year change of +39.6%.

Revenues- Automotive sales: $18.58 billion versus the eight-analyst average estimate of $20.61 billion.

Revenues- Services and other: $2.17 billion compared to the $2.19 billion average estimate based on seven analysts. The reported number represents a change of +31.7% year over year.

Revenues- Automotive regulatory credits: $554 million compared to the $324.93 million average estimate based on five analysts. The reported number represents a change of +93.7% year over year.

Revenues- Automotive leasing: $489 million versus the five-analyst average estimate of $597.34 million. The reported number represents a year-over-year change of -21.3%.

Total Automotive Revenue: $19.63 billion versus the four-analyst average estimate of $19.42 billion. The reported number represents a year-over-year change of +5%.

Gross profit- Total Automotive: $3.67 billion versus the six-analyst average estimate of $3.80 billion.

Bottom line: As Tesla plans to dominate the EV market by slashing prices on its vehicles, this trend may end next year and the margins bottom. Until then, investors remain cautious about a turnaround.

The Zacks Rank will let you know.

Additional content:

Time to Buy These Affordable Top-Rated Stocks After Earnings

Finding affordable stocks that won’t break the bank but have the potential to be viable investments is not always easy.

However, following their strong third quarter results on Monday here are several top-rated Zacks stocks that are appealing in this regard.

Goodyear

Sporting a Zacks Rank #2 (Buy) Goodyear Tire’s stock is up roughly +3% after crushing third quarter earnings expectations after market hours on Monday.

Earnings of $0.36 per share crushed Q3 estimates of $0.17 a share by 112% despite sales of $5.14 billion slightly missing estimates of $5.15 billion. Goodyear attributed the favorable bottom-line results to a reduction in raw material costs which is starting to make GT shares look enticing at around $12.

This is starting to correlate with an anticipated rebound in Goodyear’s fiscal 2024 earnings which are projected at $1.30 per share and further suggests GT shares may be undervalued at the moment. Adjusting to a high inflationary environment, Goodyear’s stock has now rebounded and soared +23% year to date.

TripAdvisor

Boasting a Zacks Rank #1 (Strong Buy), TripAdvisor’s stock has spiked +11% today after the online travel company reassuringly surpassed Q3 top and bottom line expectations.

Third quarter earnings of $0.52 per share came in 8% better than expected with sales of $533 million topping estimates by 5%. More impressive, TripAdvisor’s earnings climbed 85% from $0.28 a share in the prior year quarter with sales rising 16% year over year.

Trading at $17 a share TripAdvisor’s stock performance is virtually flat for the year after this morning’s rally. Still, the plausibility of more upside looks likely as TRIP trades reasonably at 15.2X forward earnings with 40% EPS growth now expected in FY23 and FY24.

Viper Energy Partners

Rounding out the list is Viper Energy Partners which sports a Zacks Rank #2 (Buy). Viper Energy’s stock has popped +5% in today’s trading session after the variable distribution Master Limited Partnership (MLP) blasted Q3 estimates after market hours on Monday as well.

Driven by higher crude oil prices, Q3 earnings of $1.10 per share beat expectations of $0.46 a share by 139%. On the top line, sales of $293.24 billion surpassed Q3 estimates of $196.36 billion by 49%. Notably, Viper Energy has largely surpassed earnings expectations in its last four quarterly reports posting a very stellar average earnings surprise of 92%.

Viper Energy’s stock trades at $29 a share and is down -7% YTD but the company’s earnings outlook continues to strengthen with annual EPS estimates up sharply in the last 30 days. The trend looks set to continue and strong Q3 results offered support to Viper Energy’s 14X forward earnings multiple with it also noteworthy that VNOM offers a generous 3.83% dividend yield.

Bottom Line

After impressive quarterly results, the affordable price tags of Goodyear, TripAdvisor, and Viper Energy Partners’ stock are very intriguing. Building meaningful positions without breaking the bank may start to pay off as their earnings outlook continues to strengthen which is indicative of more upside.

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