Datadog vs. Teradata: Which Big Data Stock is a Better Buy?

Datadog, Inc. (DDOG) and Teradata Corporation (TDC) are two prominent companies engaged in the big data space. DDOG provides a monitoring and analytics platform for developers, IT operations teams, and business users in the cloud age. Its SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, security monitoring, and various shared features to provide real-time observability of customers' technology stack. On the other hand, TDC focuses on providing a connected multi-cloud data platform for enterprise analytics. Its Teradata Vantage data warehouse and analytics platform allow customers to integrate and simplify their multi-cloud data and analytic ecosystems.

The growing demand for big data, data analytics and management, and cybersecurity has enabled the data industry to grow substantially over the years. Analysts predict that by 2025, each connected person will have at least one data interaction every 18 seconds. The global Big Data market is expected to grow at 18% CAGR between 2021 to 2025. So, both TDC and DDOG should benefit in the long run.

While DDOG gained 63.3% year-to-date, TDC has surged 87%. TDC is a clear winner with 81.4% gains versus DDOG’s 57.2% in terms of their past year’s performance. But which of these stocks is a better pick now? Let us find out.

Latest Developments

On December 9, 2021, DDOG announced the launch of Sensitive Data Scanner, which helps customers detect, classify and protect sensitive data found in their application logs, helping them comply with regulatory requirements, industry standards, and business policies. As the growing adoption of cloud platforms, security, and data protection provides exposure to data breaches, DDOG’s Sensitive Data Scanner is expected to witness high demand in the upcoming months.

On November 4, 2021, TDC announced a three-year Strategic Collaboration Agreement with Amazon.com, Inc. (AMZN) Amazon Web Services, Inc. (AWS) subsidiary. The collaboration will launch joint go-to-market programs designed to help customers migrate, modernize, and de-risk their cloud adoption journey using Teradata Vantage multi-cloud data platform on AWS. The companies are looking forward to delivering impactful business outcomes from start to enterprise scale.

Recent Financial Results

DDOG’s revenues for the third quarter, ended September 30, 2021, increased 74.9% year-over-year to $270.49 million. The company’s non-GAAP gross profit came in at $209.96 million, up 72.8% from the prior-year period. Its non-GAAP operating income came in at $44.02 million, indicating a 218.8% rise from the year-ago period. DDOG’s non-GAAP net profit came in at $44.27 million, indicating a 176.9% rise from the year-ago period. Its adjusted EPS increased 160% year-over-year to $0.13. As of September 30, 2021, the company had $286.97 million in cash and cash equivalents.

For its fiscal third quarter, ended September 30, 2021, TDC’s total revenue increased 1.3% year-over-year to $460 million. The company’s total gross profit came in at $275 million, up 8.3% from the prior-year period. Its income from operations was $30 million, indicating a 2900% rise from the year-ago period. TDC’s net income came in at $17 million for the quarter, compared to a $1 million loss in the prior-year period. Its EPS came in at $0.15, versus a $0.01 loss per share in the year-ago period. The company had $613 million in cash and equivalents as of September 30, 2021.

Expected Financial Performance

Analysts expect DDOG’s EPS to rise 81.8% year-over-year in the current year and 45% next year. Its revenue is expected to grow 64.7% year-over-year in the current year and 42% next year. The stock’s EPS is expected to increase at a 29.4% rate per annum over the next five years.

In comparison, TDC’s EPS is expected to rise 61.8% year-over-year in the current year and decline 14.6% next year. The stock’s revenue is expected to increase 4.7% year-over-year in the current year and 1.6% next year. Analysts expect the stock’s EPS to grow at a rate of 17.8% per annum over the next five years.

Valuation

In terms of forward EV/Sales, DDOG is currently trading at 53.33x, which is 2150.2% higher than TDC’s 2.37x. In terms of forward EV/EBITDA, TDC’s 9.02x compares with DDOG’s 336.84x.

Profitability

TDC’s trailing-12-month revenue is almost 2.2 times DDOG’s. TDC is also more profitable, with a 19.6% EBITDA margin versus DDOG’s negative value.

Furthermore, TDC’s ROE, ROA, and ROTC of 28.3%, 6.9%, and 13.8%, respectively, compare favorably with DDOG’s negative values.

POWR Ratings

While TDC has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, DDOG has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.  

TDC has a B grade for Quality, consistent with its higher-than-industry profitability ratios. TDC’s 19.6% trailing-12-month EBITDA margin is 36% higher than the 14.4% industry average. In comparison, DDOG’s C grade for Quality reflects its negative profitability ratios.

TDC has an A grade for Value, which is in sync with its lower-than-industry valuation ratios. TDC has a forward EV/EBITDA ratio of 9.02, 43.4% lower than the industry average of 15.94x. DDOG’s D grade for Value reflects its overvaluation. DDOG’s 336.84 forward EV/EBITDA multiple is 2013.2% higher than the industry average of 15.94x.

Of the three stocks in the A-rated Technology - Storage industry, TDC is ranked #1. In comparison, DDOG is ranked #34 of 60 stocks in the D-rated Software - Business industry.

Beyond what we have stated above, our POWR Ratings system has also rated TDC and DDOG for Growth, Stability, Sentiment, and Momentum. Get all TDC ratings here. Also, click here to see the additional POWR Ratings for DDOG.

The Winner

The rising demand for big data and growing investments in this space should enable the industry to grow substantially, benefiting DDOG and TDC. However, lower valuation and higher profit margins make TDC a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Storage industry, and here for those in the Software - Business industry.

DDOG shares were trading at $163.75 per share on Thursday afternoon, down $7.27 (-4.25%). Year-to-date, DDOG has gained 66.34%, versus a 26.10% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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