Why Snowflake, Datadog, and MongoDB Crashed Today

What happened

Components of disruptive enterprise software Snowflake (NIYEBE -6.42%), Datadog (DDOG -6.43%)at MongoDB (MDB -6.31%) fell 6.4%, 6.4%, and 6.3%, respectively, on Tuesday.

There isn’t any material news on these companies specifically, as most companies are in the quiet period before the earnings reports. However, comments from Bill McDermott, CEO of their enterprise SaaS peer, Service Today (NOW -12.74%)on CNBC’s Mad Money Monday night may have made investors a bit nervous about the upcoming software sector reports. Additionally, as these stocks enjoyed a three-week rally this week, some traders may lock in earnings ahead of the June Consumer Price Index report, which will be released on Wednesday.

E what now

On Monday night’s episode of Mad Money, McDermott of ServiceNow actually provided a fairly strong outlook for technology stocks in general, especially those that respond to enterprise customers. That’s because technology helps companies become more efficient, entertain customers, and limit costs in areas like labor, where their costs grow.

While ServiceNow’s automation suite certainly helps companies in those areas, so do the offers of these three powerful franchises. Snowflake helps companies collect, analyze, and act quickly on their vast amount of data, helping them gain insights they didn’t have before. MongoDB document style databases are also gaining favor on this front, allowing businesses to organize both structured and unstructured data in a more intuitive way. Finally, Datadog’s cloud platform helps organizations track and monitor the performance of all their important business and consumer -facing software applications while also detecting threats.

On the other hand, McDermott also said that some business projects that don’t offer an immediate return on investment could be delayed this year, and the strong dollar could hurt revenue numbers for tech startups. company with significant international operations this quarter.

Last quarter, MongoDB got approximately 40% of its revenues from outside the US, Snowflake got approximately 20% of its revenues from outside the US, and Datadog received approximately 28.4% of its revenue from outside North America, so a strong dollar could be reduced. their top results this revenue season.

Additionally, investors will get new inflation data on Wednesday when the Bureau of Labor Statistics releases the June Consumer Price Index. The May CPI report showed higher-than-expected inflation, prompting the Federal Reserve to raise the federal funds rate by 75 basis points in mid-June. That actually proved positive for these three stocks, as investors began to pivot from inflation fears to recession fears.

Long -term bond yields fell, which helped three stocks grow this higher. That’s because none of them are earning material income now, but their growth paths suggest that they will be in the future. When future earnings are reduced by lower long -term bond yields back in the present, their intrinsic value will increase.

Since the last report and the Fed’s subsequent interest rate hike led to a massive bounce for growth stocks, it’s possible the opposite result will be triggered by Wednesday’s report. With that in mind, traders can profit from the recent software stock rebounds.

SNOW PS Ratio Chart

SNOW PS Ratio data by YCharts

What now

It’s probably a good idea for investors to think skeptically about these three stocks right now. That’s not because they’re not great companies – they are. Instead, the concern is their values ​​high in the sky. Snowflake, Datadog, and MongoDB are still trading at 31, 26, and 20 times sales, respectively. Despite the reduction in each company’s market cap between 41% and 55% this year, those estimates don’t leave much room for error.

Each of these companies has a bright future, and their shares could be suitable purchases for young, growth -focused investors who may sit tight in further near -term declines, but not surprisingly. see more conservative traders taking some bets off the table. However, all three belong on the watch list of any tech investor, due to their high growth rates and leading franchises in their respective niches.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own the shares of the companies mentioned. Motley Fool holds positions and recommends Datadog, MongoDB, ServiceNow, Inc., and Snowflake Inc. Motley Fool has a disclosure policy.

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