2 SaaS Stocks Trading at a Massive Discount to Wall Street Estimates
Software-as-a-service or SaaS stocks such as Datadog and MongoDB have the potential to derive outsized gains to investors in the next year.
June 14, 2022

Investors with exposure to SaaS (software-as-a-service) stocks would have experienced a steep decline in portfolio values over the last six months. Prior to the sell-off, several SaaS companies were growing revenue at enviable rates and expanding their bottom-line rapidly, driving share prices higher.

However, the steep multiples of SaaS companies and a challenging macro environment have acted as key catalysts to trigger a broader market sell-off. While it's impossible to time the market, the ongoing volatility allows investors to buy quality stocks at a relative discount. So let's look at two beaten-down SaaS stocks investors should watch out for in 2022.


Datadog (NASDAQ: DDOG) provides a cloud-based monitoring and analytics platform for enterprises in North America and other international markets. Shares of Datadog are trading 56% below all-time highs, valuing the company at a market cap of $30 billion.

Datadog reported revenue of $363 million in Q1, an increase of 83% year-over-year. Its customer base widened to 19,800 compared to 15,200 in the year-ago quarter. Further, 2,250 customers generate at least $100,000 in annual recurring revenue (ARR), up from 1,406 in the same period last year. 

These customers also account for 85% of the company's ARR. Its dollar-based net retention rate stood at 130%, suggesting increased customer usage and higher customer adoption of company products.

Datadog remains optimistic about long-term growth as cloud migration and the digital transformation journey of enterprises continue to gain pace. In Q1, around 81% of customers used two or more products compared to 75% last year. Moreover, 35% of customers used four or more products, up from 25% in Q1 of 2021.

Its stellar revenue growth allowed Datadog to report a free cash flow of $130 million, indicating a margin of 36%. Datadog also reported adjusted earnings of $0.24 per share, compared to Wall Street estimates of $0.12 per share.

Datadog is forecast to increase sales by 57.3% to $1.62 billion in 2022, while adjusted earnings might expand by 54% to $0.74 per share. Despite its lower stock price, Datadog is trading at 18x forward sales and 130x forward earnings. Moreover, analysts tracking Datadog expect the stock to rise by 70% in the next 12 months.


Valued at a market cap of $16.3 billion, MongoDB's (NASDAQ: MDB) stock is down 59% from all-time highs. It provides a general-purpose database platform to enterprises globally.

In Q1 of fiscal 2023 (ended in April), MongoDB reported revenue of $285.4 million, an increase of 57% year-over-year. The primary driver of the company's sales was its cloud data platform Atlas, which saw an 82% rise in revenue.

Its subscription sales were $274.6 million, accounting for 96% of total revenue. Its adjusted gross profits rose to $214.3 million, indicating a margin of 75%, compared to 72% in the year-ago period. 

An improvement in gross profits enabled MongoDB to widen its operating and net income by a significant margin. MongoDB ended Q1 with an adjusted operating income of $17.5 compared to a loss of $2.8 million in the prior-year quarter. Its adjusted net income stood at $15.2 million or $0.20 per share compared to a loss of $3.9 million or $0.06 per share in Q1 of fiscal 2022.

MongoDB's operating cash flow stood at $11.6 million, and its free cash flow was $8.4 million in the quarter ended in April. It also ended the quarter with more than $1.8 billion in cash, providing it with enough flexibility to reinvest in growth.

MDB stock is trading at 14x forward earnings and is expected to report an adjusted loss of $0.24 per share in fiscal 2023. Despite its sky-high valuation, Wall Street remains optimistic about MongoDB and expects the stock to increase by 50% in the next 12 months.

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