The S&P 500 set a new record high in December 2023, cementing the bull market that began when the index bottomed 14 months before. It continues to climb, and a series of tailwinds could give this bull market legs for years to come.
They include strong earnings growth from America's corporate sector, falling inflation, and potential interest rate cuts which are expected to start at the end of 2024 and extend into 2025. Therefore, there is no time like the present to buy stocks, especially for investors with a multiyear time horizon.
Netflix (NFLX -1.38%) will report its latest quarterly financial results in July, with Datadog (DDOG 0.96%) set to report in August. Both companies delivered strong results to start 2024, and that momentum could carry through to the upcoming quarter. Here's why it might be time to buy both stocks.
Netflix is building on its lead in the streaming industry
Netflix is the undisputed king of the streaming industry. It has 269.6 million subscribers worldwide, over 100 million more than Disney's Disney+, which is widely considered to be the second-most popular streaming service.
Netflix added 37.1 million subscribers during the first quarter of 2024 (ended March 31) alone, representing a 16% increase from the year-ago period. That growth rate marked the fifth consecutive quarter of acceleration, as the company reaps the rewards of its new paid sharing plan and its advertising tier.
The ad-tier plan accounted for 40% of all sign-ups in Q1 (in countries where it's available). It's priced at $6.99 per month, which is much cheaper than the Standard plan at $15.49 per month, yet it generates just as much revenue for Netflix because the shortfall is bridged by advertising dollars. That's a win-win for both the company and the customer.
There is still plenty of upside to the Netflix story. The platform represents just 8.1% of TV time globally, so its market share is tiny. Plus, the company is highly profitable, generating $2.3 billion in net income on $9.3 billion in revenue during Q1, which enables it to spend heavily on new content to keep subscribers engaged.
In fact, Netflix could invest $17 billion in content this year, which includes a deeper dive into live entertainment. The platform will stream the Jake Paul vs. Mike Tyson boxing match in November, and it just signed a 10-year deal to become the home of World Wrestling Entertainment (WWE) from 2025.
Netflix believes it has a $600 billion opportunity across TV, movies, gaming, and advertising, so even though its stock is closing in on a record high, there could be plenty of long-term upside ahead. The company will report its financial results for the second quarter (ending June 30) in July; investors should look out for a continued acceleration in its subscriber growth. If that happens, its financial success will follow.
Artificial intelligence should be a big tailwind for Datadog
Cloud computing is an important technology that empowers businesses to operate online. However, managing personnel, sales channels, and day-to-day workflows all within the digital sphere can be challenging. Datadog's cloud monitoring platform helps businesses quickly identify technical issues within its digital infrastructure before they disrupt operations or impact customers.
Datadog recently turned its attention to artificial intelligence (AI), launching a series of products last year to serve this fast-growing industry. Bits AI is the company's new AI virtual assistant, which integrates into the legacy Datadog platform and helps identify incidents, autonomously crafts useful summaries, and notifies management when necessary. Plus, its chatbot-style interface allows employees to ask questions and dive deeper into specific incidents.
Datadog also offers an observability platform specifically for AI applications and large language models (LLMs). It helps developers track performance, usage, cost, and even model drift, which is the gradual decay in the accuracy of an LLM as the real world changes over time.
As of the first quarter of 2024, Datadog said AI customers accounted for 3.5% of its revenue, which was up from 3% just three months earlier. The company expects to generate $2.6 billion in total revenue this year, so the dollar figure represented by AI is still relatively small, but it's expanding quickly.
Research firm McKinsey & Company predicts around 70% of organizations will use AI by 2030, which implies most of Datadog's existing 28,000 customers will probably require its AI products at some stage. That will be a very lucrative cross-selling opportunity over the long term.
During Q1, Datadog grew its revenue by 27% compared to the year-ago period while slowing the pace of growth in its expenses. That led to a profit of $42.6 million, which was a big swing from the $42.1 million net loss it delivered during the same quarter in 2023. So, not only is Datadog growing nicely with a huge AI opportunity in its back pocket, but it's also a profitable business, which is a big change from its formative years when it ran sizable losses in the hunt for growth.
If Datadog continues on its current path, its stock could do well over the long term. The company will release its financial report for the second quarter (ending June 30) in August, which will give investors a fresh look into its progress.
