A heavy week of software earnings, but we walked out feeling good about high-quality growth companies more than ever. In the face of rising interest rates and a hawkish Fed, the market prefers assets with improving margins, efficient GTM, and sustainable cash flow. In a slowing economy, growth becomes a scarcity that investors chase. That's why we believe high-quality growth companies will continue to command premium valuation while companies growing at the cost of a huge cash burn will suffer. The market diverges to this week's earnings: Datadog's stock bounced back to November's high following a monster quarter with record growth and steady margins, while cash-burning Confluent sold off by 30% in two days. A high-level recap on the two companies:
Datadog never ceased to amaze us with its extraordinary execution. While its two competitors, Dynatrace and New Relic, both sold off heavily following revenue deceleration and light guidance, $DDOG delivered 84% YoY revenue growth with record net new ARR and record-high new logos. We particularly like how it achieves sustainable growth without burning cash, and cash has been up 20% Y/Y.
Confluent, a hypergrowth company, suffered from expectation miss despite revenue acceleration. Revenue was up 71% YoY but still seems light given high expectations from the buy-side. Cloud revenue decelerated to 211% vs. 245% in the previous quarter. We don't see the company turning profitable any time soon, with S&M growing at 70% revenue and R&D 30% of revenue. The market can be unforgivable to deceleration for multiple premium stocks, given all the macro uncertainties.
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