Datadog pops 39% in Nasdaq debut as cloud software IPOs stay hot

Key Points
  • Datadog priced its stock at $27, selling 24 million shares and raising $648 million in its IPO.
  • The company competes with Cisco, Elastic and Splunk, along with cloud providers like Amazon.
  • Datadog shares soared in their debut, following a trend among cloud software companies.
Olivier Pomel
Source: CNBC

Datadog, a cloud software company that sells analytics and monitoring tools, surged 39% in its stock market debut on Thursday, becoming the latest subscription software company to be met with enthusiasm by public market investors.

Trading on the Nasdaq under the ticker symbol "DDOG," the stock climbed to $40.50 out of the gate, up from the $27 IPO price, valuing the company at $10.9 billion. It closed the trading day at $37.55.

Datadog, which competes with cloud providers Amazon and Microsoft, as well as Cisco, Elastic and Splunk, follows Crowdstrike, Zoom and other fast-growing software companies onto the public markets, where investors are showing a preference for the more predictable metrics than they get from cash-burning consumer companies like Uber and Lyft.

Datadog's subscription-based offering helps developers and administrators make sure their applications and underlying infrastructure are working properly. The software can track performance for systems running in public clouds, or in corporate data centers.

At its current market cap, Datadog is being valued at about 41 times trailing 12-month revenue, which makes it among the priciest cloud software stocks on the market. Zoom is the only company with a higher price-to-sales ratio at about 50, according to FactSet, and Crowdstrike is next at 44.

In the first six months of 2019, Datadog's revenue jumped 79% to $153.4 million. The company recorded a net loss of $13.4 million in the first half of the year as research and development costs doubled and sales and marketing costs increased almost as much.

Datadog first filed to go public on Aug. 23. It later provided a price range of $19 to $22, before raising the range this week to $24 to $26. It ultimately priced $1 above that range, selling 24 million shares and raising $648 million. Bloomberg reported on Wednesday that Cisco offered to buy Datadog for more than $7 billion in recent weeks, citing people familiar with the matter. The company wasn't interested, according to the report, and Datadog CEO Olivier Pomel declined to comment to CNBC on Thursday.

Underwriters will have the option to buy an additional 3.6 million shares. Morgan Stanley, Goldman Sachs, J.P. Morgan chase and Credit Suisse led the IPO.

Datadog was founded in 2010 and is based in New York. Earlier investors include Index Ventures, OpenView Venture Partners, ICONIQ Strategic Partners and RTP Ventures.

WATCH: Datadog CEO Olivier Pomel on the company's IPO

Datadog CEO Olivier Pomel on the company's IPO
Datadog CEO Olivier Pomel on the company's IPO