With a $30.26 billion market cap, Datadog, Inc. (DDOG) provides Software-as-a-Service (SaaS) monitoring and analytics platforms for developers, information technology (IT) operations teams, and business users.

In the second quarter of fiscal 2022 ended June 30, DDOG reported an operating loss of $3.14 million and a net loss of $4.88 million. The company’s total liabilities stood at $1.44 billion as of June 30, 2022, compared to $1.34 billion as of December 31, 2021.

Analysts expect DDOG’s EPS to come in at $0.16 and $0.13 during the third and fourth quarters of the current fiscal year, indicating sequential declines of 33.3% and 18.8%, respectively. Moreover, the company lowered its revenue guidance for the rest of the year.

The stock has plummeted 23% over the past six months and 29.9% over the past year to close the last trading session at $97.89.

Notwithstanding DDOG’s recent performance, the broader software industry is positioned to benefit from lasting tailwinds, such as increasing digitization and automation of business operations, hybrid work culture with more remote teams, and growing demand for cyber security.

Global revenues from software services are expected to grow at 6.5% CAGR over the next five years to reach $812.90 by 2027, with the United States well-poised to benefit most from it. Hence, we suggest considering fundamentally strong software stocks Microsoft Corporation (MSFT) and GoDaddy Inc. (GDDY) for your portfolio instead of DDOG for better risk-adjusted returns.

Microsoft Corporation (MSFT)

MSFT, the ubiquitous software behemoth, needs no introduction. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.

On September 7, it was revealed that MSFT would be funding CloudKitchens. The startup buys and leases warehouse space to convert premises into units rented by restaurants to cook food to be sold via delivery apps. MSFT’s investment could be part of a commercial agreement involving its cloud computing business and holds long-term promise.

On September 6, MSFT emerged as one of the frontrunners for the acquisition of Aurora Innovation, Inc. (AUR), a self-driving tech company. Materialization of this acquisition would augment MSFT’s automation portfolio and is expected to strengthen its financial performance in the long run.

On August 9, MSFT and Barclays Bank PLC (Barclays) announced their joint agreement by which Barclays deployed Microsoft Teams as its collaboration platform. MSFT has benefited significantly as digital collaboration accelerated over the past two years.

MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion for the fourth quarter ended June 30, 2022. The company’s operating income grew 8% from the year-ago value to $20.50 billion. During the same period, its net income increased 2% year-over-year to $16.74 billion, while its EPS came in at $2.23, up 2.8% year-over-year.

For the fiscal year ending June 2023, analysts expect MSFT’s revenue to come in at $220.48 billion, representing an increase of 11.2% year-over-year. During the current fiscal, Street expects MSFT’s EPS to increase 10.8% year-over-year to $10.21. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

MSFT’s shares have gained 1% over the past five days to close the last trading session at $258.52.

MSFT’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Also, the stock has a B grade for Stability, Sentiment, and Quality. Within the Software – Business industry, it is ranked #10 out of 54 stocks. Click here for MSFT’s additional POWR Ratings for Growth, Value, and Momentum.

GoDaddy Inc. (GDDY)

GDDY helps individuals and organizations to establish an online presence, connect with customers and manage their ventures by providing cloud-based solutions to access third-party products and platforms. The company’s offerings include domains, hosting and presence, business applications, and connected commerce.

On June 13, GDDY announced a partnership with its Venture Forward research initiative and mySidewalk to launch an online tool that gives local and regional U.S. policymakers unprecedented access to information on the economic impact of over 20 million microbusinesses. This is expected to enhance subscribers’ insights to inform their policy decisions.

For the second quarter of fiscal 2022 ended June 30, 2022, GDDY’s revenues increased 9% year-over-year to $1.05 billion. During the same period, the company reported an operating income of $124.6 million, up 41.6% year-over-year. The Normalized EBITDA (NEBITDA) increased 30.3% over the previous-year quarter to $258.4 million.

As a result, GDDY’s net income increased 93% year-over-year to $90.5 billion during the quarter. This translated to $0.56 net income per share attributable to GDDY Class A common stock, up 107.4% from the previous-year quarter.

Analysts expect GDDY’s revenue and EPS for the current fiscal year to increase 7.9% and 5.1% to $4.12 billion and $3.09, respectively. During the next fiscal, the metrics are expected to show a further 8.6% and 9.1% improvement to $4.47 billion and $3.37, respectively.

The stock has gained 1.4% over the past year to close the last trading session at $76.23.

GDDY’s POWR Ratings indicate its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. GDDY also has a grade B for Sentiment.

GDDY is ranked #8 among 54 stocks in the same industry. Click here to access the Growth, Value, Stability, Quality, and Momentum ratings for GDDY.

MSFT shares were trading at $264.57 per share on Friday afternoon, up $6.05 (+2.34%). Year-to-date, MSFT has declined -20.82%, versus a -13.72% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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