As the Q2 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the software development industry, including Datadog (NASDAQ:DDOG) and its peers.
As legendary VC investor Marc Andreessen says, "Software is eating the world", and it touches virtually every industry. That drives increasing demand for tools helping software developers do their jobs, whether it be monitoring critical cloud infrastructure, integrating audio and video functionality, or ensuring smooth content streaming.
The 11 software development stocks we track reported a mixed Q2. As a group, revenues beat analysts’ consensus estimates by 1.6% while next quarter’s revenue guidance was in line.
After much suspense, the Federal Reserve cut its policy rate by 50bps (half a percent) in September 2024. This marks the central bank’s first easing of monetary policy since 2020 and the end of its most pointed inflation-busting campaign since the 1980s. Inflation had begun to run hot in 2021 post-COVID due to a confluence of factors such as supply chain disruptions, labor shortages, and stimulus spending. While CPI (inflation) readings have been supportive lately, employment measures have prompted some concern. Going forward, the markets will debate whether this rate cut (and more potential ones in 2024 and 2025) is perfect timing to support the economy or a bit too late for a macro that has already cooled too much.
Luckily, software development stocks have performed well with share prices up 10.8% on average since the latest earnings results.
Datadog (NASDAQ:DDOG)
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ:DDOG) is a software-as-a-service platform that makes it easier to monitor cloud infrastructure and applications.
Datadog reported revenues of $645.3 million, up 26.7% year on year. This print exceeded analysts’ expectations by 3.2%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ billings and EBITDA estimates.
"Datadog executed well in the second quarter, with 27% year-over-year revenue growth, continued customer growth, and expanding multi-product adoption across our platform," said Olivier Pomel, co-founder and CEO of Datadog.
Datadog Total Revenue
Interestingly, the stock is up 14.8% since reporting and currently trades at $124.11.
Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.
Bandwidth reported revenues of $173.6 million, up 19% year on year, in line with analysts’ expectations. The business had a strong quarter with an impressive beat of analysts’ EBITDA estimates and a significant improvement in its net revenue retention rate.
Bandwidth Total Revenue
Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 21.2% since reporting. It currently trades at $17.94.
Started by three former Amazon engineers, PagerDuty (NYSE:PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.
PagerDuty reported revenues of $115.9 million, up 7.7% year on year, in line with analysts’ expectations. It was a slower quarter as it posted underwhelming revenue and earnings guidance for the next quarter.
PagerDuty delivered the weakest full-year guidance update in the group. The company lost 76 customers and ended up with a total of 15,044. As expected, the stock is down 2% since the results and currently trades at $17.92.
Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.
GitLab reported revenues of $182.6 million, up 30.8% year on year. This print beat analysts’ expectations by 3.1%. Overall, it was a very strong quarter as it also logged an impressive beat of analysts’ billings estimates and optimistic earnings guidance for the next quarter.
GitLab achieved the fastest revenue growth and highest full-year guidance raise among its peers. The stock is up 25.7% since reporting and currently trades at $56.15.
Founded in 2008 by Jeff Lawson, a former engineer at Amazon, Twilio (NYSE:TWLO) is a software as a service platform that makes it really easy for software developers to use text messaging, voice calls and other forms of communication in their apps.
Twilio reported revenues of $1.08 billion, up 4.3% year on year. This print topped analysts’ expectations by 2.4%. Taking a step back, it was a mixed quarter as it also logged a solid beat of analysts’ EBITDA estimates but decelerating customer growth.
The company added 3,000 customers to reach a total of 316,000. The stock is up 27.1% since reporting and currently trades at $71.52.
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