On Thursday, Datadog (NASDAQ:DDOG) received an upgrade from Monness, Crespi, Hardt from Neutral to Buy, with a new price target of $155.00. The upgrade follows a positive third-quarter report and a promising outlook for the fourth quarter. The firm also fine-tuned its guidance for the full year 2024.
Datadog, a monitoring and analytics platform for developers, IT operations teams, and business users in the cloud age, has weathered what the analyst described as software's "nuclear winter" in 2024. Despite the broader underperformance in the sector, Datadog's stock has managed to remain resilient, leading to a valuation that the analyst firm finds more attractive.
The analyst noted that the hype around general AI in 2023 did not translate into substantial revenue for most software companies in 2024. In contrast, Datadog has been more successful in leveraging the trend, which is expected to contribute to the company's growth over the next 12-18 months.
The third-quarter results exceeded expectations, and the company's guidance for the fourth quarter suggests continued health in its operations. This performance, coupled with the adjusted guidance for the year, has contributed to the firm's decision to raise the stock's rating.
Investors and market watchers will be keeping an eye on Datadog's performance in the coming months, as the company aims to capitalize on the long-term secular trend of AI and its implications for the software industry. The new price target of $155.00 reflects a vote of confidence in Datadog's strategy and market position.
In other recent news, Datadog has been the subject of positive attention from various analysts. TD Cowen reaffirmed its Buy rating on Datadog, projecting an anticipated revenue growth of approximately 26%. This expected growth surpasses the company's high-end guidance of 21%.
TD Cowen's confidence is based on several factors such as strong product uptake, robust performance in the Logs product category, and a significant federal deal.
Other firms have also shown confidence in Datadog's performance. BMO Capital upheld an Outperform rating, modestly raising Datadog's target from $132 to $135 due to their confidence in the company's revenue growth. UBS upgraded Datadog from Neutral to Buy, increasing the price target to $150, based on the potential for Datadog to maintain or possibly modestly accelerate its mid-20% growth rate.
Meanwhile, BofA Securities maintained its Buy rating and $155 stock price target for Datadog, based on a survey of customers indicating robust demand for the company's services. DA Davidson also upgraded Datadog from Neutral to Buy, lifting its price target from $115 to $140, reflecting their confidence in Datadog's potential for sustained growth.
Datadog's CFO, David Obstler, emphasized the company's ambition to become an essential platform for customers, with a significant focus on product innovation and market share expansion in areas like Application Performance Monitoring (APM) and Logs. AI integration is also a part of Datadog's strategic focus, contributing to 4% of the ending ARR in June.
InvestingPro Insights
Datadog's recent upgrade and positive outlook are further supported by several key financial metrics and insights from InvestingPro. The company's revenue growth remains strong, with a 26.66% increase in the most recent quarter. This aligns with the analyst's positive view on Datadog's performance and future prospects.
InvestingPro Tips highlight Datadog's impressive gross profit margins, which stand at 81.57% for the last twelve months as of Q2 2024. This high profitability metric underscores the company's operational efficiency and supports its ability to invest in growth initiatives, including AI-related developments mentioned in the analyst report.
Additionally, Datadog's market capitalization of $43.61 billion reflects investor confidence in its long-term potential. While the company trades at a high P/E ratio of 263.32, this is not uncommon for high-growth tech companies, especially those successfully leveraging emerging trends like AI.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Datadog, providing a deeper understanding of the company's financial health and market position.
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