The Selling Did Not Stop at the Print: Datadog and AppLovin Keep Sliding
The immediate reaction to an earnings report gets the headlines, but the more revealing pattern this season has been what happens in the days afterward. Two of the quarter's most violent single-day declines, Datadog and AppLovin, were still leaking value on Tuesday, roughly a week after each company reported.
Datadog fell 3.3% in Tuesday's session and AppLovin dropped 5.1%, according to TheStreet's market coverage, on a day when the S&P 500 slipped 0.10%, the Nasdaq Composite fell 0.39% and the Russell 2000 was the only major index in positive territory at 0.45%. Neither move was driven by fresh news from the companies themselves.
Datadog's case remains the more confounding of the two. The monitoring software company reported second-quarter revenue of $1.12 billion, up 36% year over year and ahead of the $1.08 billion consensus, with earnings of $0.65 per share against a $0.58 estimate. It raised full-year guidance to $2.50 to $2.54 per share on revenue of $4.45 billion to $4.47 billion, up from prior ranges of $2.36 to $2.44 and $4.30 billion to $4.34 billion, and guided third-quarter revenue and earnings above consensus.
The stock fell 21% anyway on August 6. Evercore called the decline "extreme" given the results, while allowing that "the lack of revenue acceleration in 2H may weigh on the uber bull case," per Yahoo Finance's coverage. The report attributed much of the move to profit-taking after the stock had set an all-time closing high earlier that week, a reading consistent with a stock that had priced in acceleration and got merely growth. Datadog ended the quarter with 4,720 customers generating at least $100,000 in annual recurring revenue, up 23% from a year earlier.
AppLovin's decline had a firmer fundamental hook. The advertising technology company posted second-quarter revenue of $1.92 billion, up 52.8% year over year but roughly 1.2% short of the $1.95 billion analysts expected, according to a StockStory analysis carried by Barchart. Adjusted EBITDA of $1.61 billion, an 83.9% margin, also came in about 1.5% below estimates, while GAAP earnings of $3.76 per share landed essentially in line with the $3.75 consensus.
The guidance sealed it. AppLovin pointed to third-quarter revenue of roughly $2.07 billion at the midpoint against consensus near $2.08 billion, a shortfall of well under one percent that was nonetheless enough to trigger a 21% decline to $331.57 on August 5. Operating margin actually expanded to 77.7% from 76.1% a year earlier, which underscores that the selling was about the growth trajectory rather than profitability.
What links the two cases is the arithmetic of high expectations rather than any shared business problem. Both companies grew revenue at rates most of the index would envy, and one of them beat and raised. In both cases the stock had already been bid to a level that required more, and the multiple did the falling. That is the same mechanism that hit AMD and DaVita earlier this month.
The continued weakness on Tuesday suggests the repricing has not fully settled. Post-earnings drift, where a stock keeps moving in the direction of its initial reaction for days or weeks, has been a recurring feature of this season, particularly among software and advertising names whose valuations depend on the durability of growth rates rather than current cash flows. With the second-quarter calendar nearly exhausted, these positions have few near-term catalysts to reverse the trend.
