On Tuesday, Guggenheim maintained a Neutral stance on Datadog (NASDAQ:DDOG), a monitoring and analytics platform for developers, IT operations teams, and business users in the cloud age.
Following Datadog's first-quarter results, the firm recognized an improvement in business momentum despite revenue growth falling slightly short of some market expectations. This was attributed to the reacceleration of revenue not fully aligning with the growth seen by major cloud providers.
Datadog's second-quarter guidance appears cautiously optimistic, indicating the company could achieve the higher end of its forecast without securing new contracts. The revised full-year 2024 guidance, which was increased based on the first-quarter performance, suggests stronger business momentum in the second half of the year.
While Guggenheim sees the potential for about 25% growth compared to the 22% projected in the company's guidance for FY24, they consider the outlook to be less conservative and indicate possible upside.
The management of Datadog has clarified that while the company's success is connected to large-scale cloud providers over time, the relationship is not directly proportional to growth. They also noted that Datadog's platform is increasingly tied to artificial intelligence inferencing and AI workloads in production, which may indicate future benefits from increased volume, particularly from AI vendors using the platform.
Guggenheim believes that it is a question of when, rather than if, Datadog will see a more significant acceleration in business momentum. This expectation is supported by near-term investments in sales and marketing. Still, with Datadog's stock trading at approximately 14 times next twelve months' recurring revenue, the firm suggests that expectations for a quicker acceleration might already be reflected in the current stock price.
InvestingPro Insights
As Datadog (NASDAQ:DDOG) continues to navigate its growth trajectory, insights from InvestingPro reveal key financial metrics and expert analysis that could be vital for investors. With a market capitalization of $37.86 billion, Datadog stands out with its impressive gross profit margin of 80.76% over the last twelve months as of Q1 2023, highlighting the company's ability to maintain profitability despite operating in a competitive space.
InvestingPro Tips indicate that Datadog holds more cash than debt on its balance sheet, which is a strong indicator of financial health and resilience. Moreover, analysts predict that the company will be profitable this year, supported by an expected net income growth. These factors could be seen as a testament to Datadog's solid business model and its ability to adapt to market demands.
While the company's P/E ratio stands at a high 873.73, reflecting a premium valuation, the revenue growth of 27.06% over the last twelve months showcases the company's capacity for increasing its top line. For investors looking to delve deeper into Datadog's financials and future prospects, InvestingPro offers an additional 12 tips, which can be accessed by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
With the next earnings date set for May 7, 2024, investors will be keen to see if the positive trends in revenue and profitability continue, potentially providing further momentum to the stock's 65.82% return over the past year.
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