Stanley Druckenmiller (Trades, Portfolio) is a legendary investor who is most famous for his work with George Soros (Trades, Portfolio) at the Quantum Fund in 1992. There, he shorted the British pound and made a staggering $1 billion in a single day. These days, Druckenmiller is the founder and portfolio manager at Duquesne Capital Management, which he converted into a private family office in 2010.
In this article, we're going to go over two high growth technology stocks that Druckenmiller was buying in the second quarter of 2022 according to his firm's latest 13F report.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Crowdstrike
In the second quarter of 2022, Stanely Druckenmiller purchased 229,600 shares of cybersecurity stock Crowdstrike (CRWD, Financial). During the quarter, the stock traded at an average price of $181, which is 10% more expensive than where the stock trades at the time of writing.
Crowdstrike is a cybersecurity company that is a leader in endpoint protection. You can think of “end points” as the devices which you use to access a network, including PCs, tablets or even smart phones. Since the pandemic began, we have seen a massive rise in remote working, and the corporate shift to the cloud has accelerated, which has meant the attack surface has widened and many systems are more vulnerable to hackers. Historically, an IT security admin would just have to worry about the devices inside a corporate office building and on the network. But these days, devices can be accessing the corporate network from an unsecure home router or public wifi hotspot. Thus, the need for secure endpoint protection is more vital than ever.
Crowdstrike software uses machine learning to build a model of the average “security posture” of each endpoint device. Then the software uses Artificial Intelligence (AI) to detect changes in this posture. Let’s say “employee A” usually accesses the office network and an HR application from Miami, Florida, where he lives. But then one day, access is shown from Russia, and a finance application is attempted to be opened. Crowdstrike will detect this anomaly and offer an alert to a real-time threat response team.
Often hackers will try a ransomware attack in which they infect a machine, extract sensitive data, and then hold it hostage until ransom is paid. This is a major fear for many organizations as it doesn’t just damage a business financially but also reputationally. Luckily Crowdstrike offers ransomware insurance for businesses, which makes it a no brainer purchase for organizations. However, after speaking to a few penetration testers, it seems they deem this to be a fairly risky strategy. But like all insurance, if the business has done its statistical calculations correct, then this should be a profitable endeavor. Crowdstrike customers include half of the Fortune 500, and big name brands such as Goldman Sachs (GS, Financial).
Crowdstrike recently announced strong financial results for the second quarter of 2022. Revenue was $535.2 million, which popped by a rapid 58% year over year. Annual Recurring Revenue (ARR) popped by 59% year over year to $2.14 billion. This growth was driven by 1,741 new customers, up 51% year over year, which brings the total to 19,686 as of the second quarter of 2022.
The business is operating at a net loss of $48.3 million as it has invested aggressively into sales and marketing to grow the business. Normalized earnings per share was $0.36 in the second quarter, which beat analyst expectations by $0.09.
Crowdstrike has a solid balance sheet with $2.3 billion in cash and just $740 million in long term debt.
Crowdstrike trades at a forward price-sales ratio of 17, which is 41% cheaper than its five-year average.
The GF value calculator indicates a GF value of $297 per share for the stock, which makes it “significantly undervalued” at current levels.
Datadog
Druckenmiller's firm purchased approximately 298,000 shares of Datadog (DDOG, Financial) at the quarter's average price of $110, which is 20% more expensive than where the stock trades at the time of writing.
Datadog is a software company that has created a leading platform for what is called “IT Observability." As more businesses are digitally transforming their operations to the cloud, the need to monitor the various parts has become more vital than ever. The word “leader” gets thrown around a lot with tech, but Datadog is a Gartner Magic Quadrant leader in IT Observability. The business breaks down business silos and allows real-time data to be collected and analyzed using AI. This enables usage patterns to be identified and then errors highlighted automatically when anomalies occur.
The business's Application Performance Monitoring (APM) product enables bottlenecks to be highlighted and errors to be solved in real-time. The beautiful thing about Datadog's system is it works across environments from an organization's on-premises data center to the cloud.
Datadog generated strong financial results for the second quarter of 2022. Revenue was $406 million, which popped by a spectacular 74% year over year and beat analyst estimates by $24 million. This growth was driven by a boost in larger customers to 2,420, up from 1,570 in the equivalent quarter last year.
The company generated normalized earnings per share of $0.24, which beat analyst estimates by $0.09. The company is operating at a net loss of $3.1 million on a GAAP basis. However, it should be noted this is driven by aggressive sales and marketing investments of ~$115 million and R&D expenses of $178 million.
The business also has received education status approval from the world's largest cloud infrastructure provider Amazon's (AMZN, Financial) Amazon Web Services. This opens up a door for Datadog to penetrate the vast higher education market as universities transform to the cloud.
Management announced tepid guidance for the third quarter with revenue expected to only increase by ~2%. However, the good news is for the full year of fiscal 2023, 60% growth is expected.
The business also has a solid balance sheet with $1.7 billion in cash and cash equivalents compared to $808 million in total debt.
Datadog is trading at a forward price-sales ratio of 17, which is 47% cheaper than its five-year average.
The GF Value chart indicates a fair value of $192 per share for the stock, which means the stock is “significantly undervalued” at the time of writing.
