Datadog's Strong Start To 2024: Analysts Optimistic About Ongoing Market Leadership, 'More/Faster Cloud Software Creation Is Better"

Zinger Key Points
  • Datadog has a long runway of module expansion opportunities and expects these trends to continue, says an analyst.
  • Another analyst notes the key AI driver is the creation of more cloud software.

Morgan Stanley analyst Sanjit Singh reiterated an Overweight rating on Datadog, Inc DDOG with a price target of $137.

The analyst highlighted that in a challenging software environment in the first quarter, Datadog delivered a bona fide beat and a forward estimate raise. As a perceived cloud attach play, he noted the market was expecting a more pronounced acceleration (and forward raise) than what Datadog delivered. 

Singh noted that underlying fundamentals were improving, as evidenced by enhanced usage trends and reduced optimization activity.

Furthermore, strong product innovation positions the company well for strategic consolidation opportunities in the enterprise at a time when new products outside of APM, Infrastructure Monitoring, and Logs are starting to contribute. He noted this should translate to 25%+ growth in 2024, with the potential for growth to sustain and accelerate in 2025 and beyond when AI workloads go live in production environments.

Singh said the shares still look attractive for a platform company taking a share in a large addressable market with highly compelling unit economics.

Truist Securities analyst Joel P. Fishbein Jr. reiterated a Buy rating on Datadog with a price target of $155.

The analyst said Datadog carried its fiscal 2023 momentum into the first quarter of 2024, delivering a beat across the board driven by improving usage trends and broader platform adoption.

The analyst noted Datadog has a long runway of module expansion opportunities and expects these trends to continue.

Management provided additional color into the timing and scale of new product adoption, giving incremental confidence in their ability to sustain market-leading growth.

AI customer contribution ticked higher and generally speaking, Fishbein noted the key AI driver in the story as the creation of more cloud software. The company lifted its fiscal 2024 outlook, though he said it could prove conservative. 

Generally speaking, he put DDOG in the camp of “more/faster cloud software creation is better” AI beneficiaries.

The analyst projected second-quarter revenue of $622 million (prior $616 million) and EPS of $0.35.

DA Davidson analyst Gil Luria maintained a Neutral rating with a price target of $115.

Luria said the re-rating followed the first quarter of 2024, demonstrating progress toward greater customer adoption of Datadog’s growing portfolio, sequential improvement of optimization forces and stronger-than-expected margin accretion. 

Given the well-accepted viewpoint that Datadog’s business essentially tracks with the Cloud hyperscalers, the analyst noted the market was expecting a more significant rise following strong outlooks from Microsoft Corp MSFT Azure, Alphabet Inc GOOG GOOGL GCP and Amazon.Com Inc AMZN AWS.

Concerning AI, he said Datadog is making progress in leveraging its core know-how to deliver a growing toolkit for the demands of AI-enabled computing and expects to learn more about forthcoming AI products at its user conference in June.

The analyst projects second-quarter revenue of $622.1 million (prior $611.4 million) and EPS of $0.36.

DDOG Price Action: DDOG shares traded higher by 3.72% at $116.58 at the last check Wednesday.

Photo: rafapress via Shutterstock

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Posted In: Analyst ColorNewsPrice TargetReiterationAnalyst RatingsTechTrading IdeasBriefsDA DavidsonExpert IdeasGil LuriaJoel P. Fishbein Jr.Morgan StanleySanjit SinghTruist Securities
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