Thanks to the robust transition to cloud-based infrastructure, technology companies providing business process solutions have been faring exceptionally well lately. Take for example the recent IPOs of Crowdstrike Holdings (NASDAQ: CRWD) or Zoom Video Communications (NASDAQ: ZM) – both have given more than 100% returns till date.

Keeping up with the enthusiastic response, software company Datadog Inc. makes its market debut today, by floating 24 million shares at an offer price of $27, which is above its indicated price range of $24-$26 per share. The price range was initially set at an even lower level at $19-$22 per share, and was raised after predicting high demand.  

The stock will trade under the symbol DDOG. The New York-based company has raised approximately $650 million through the IPO, and is currently valued at around $7.8 billion.

What exactly does it do?

No, it doesn’t bite. The nine-year-old company helps enterprise firms monitor their scalability and performance through a cloud-based data analytics platform. It also helps in decoding key consumer trends that are vital for the organization and drives collaboration among different operations. In short, Datadog provides monitoring services that are inevitable for an effective digital transformation.  

The company, which boasts over 8,800 customers, has inked partnerships with major cloud infrastructure companies including Google Cloud, AWS, Microsoft Azure and Red Hat. According to its S-1 filing, it has over 40 customers with more than $1 million in Annualized Run Rate.

According to Bloomberg, the company was recently approached for a takeover by Cisco Systems Inc.(NASDAQ: CSCO), but Datadog turned down the offer as it expects to attain better valuation in the long term on its own.  

Notably, it was listed among the top 10 companies in the Forbes 100 cloud rankings 2019 for its fast growth and versatility.

Attractive financials

Datadog’s biggest positive is its ability to quickly grow the topline. Not only have revenues almost doubled between 2017 and 2018, but the growth has also been capital efficient. As of June 30, 2019, Datadog had cash reserves of $63.6 million.

Though the monitoring firm has mostly been incurring losses, it has managed to turn some intermittent narrow profits, which is appreciable for a company of its size.

datadog has been growing its revenues at a rampant pace but mostly incurring losses

Gartner estimates that only 5% of all applications were being monitored in 2018, suggesting the budding nature of the industry. With robust expansion opportunities within and outside the US, Datadog has ample opportunities to convert the increasing revenues into profits.

Datadog estimates its current market opportunity at around $35 billion.

READ: Major IPOs expected in late-2019 or 2020

Risk elements

Prima facie, risks associated with the company are minimal compared to other areas of technology. However, there is one major threat that could even break the company. A security breach or data theft could malign the reputation of the firm, and may lead to significant liabilities.

A service outage could also have a major impact on the firm, though not as far-reaching as a security breach. As long as Datadog stays clear of these threats, it should be a rewarding stock to investors.

DISCLAIMER: The article does not necessarily imply the views of AlphaStreet, and contains opinions of the author alone. 

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