On Friday, a UBS analyst upgraded Datadog (NASDAQ:DDOG) stock, a cloud-based monitoring and analytics platform, from Neutral to Buy. Accompanying the upgrade, the price target was increased to $150.00, up from the previous target of $125.00.
The adjustment follows UBS's latest industry checks, which suggest emerging signs of a possible spending rebound in the second half of the year and strong medium-term growth prospects for the cloud infrastructure sector, particularly AWS and Azure.
Keirstead cited the potential for Datadog to maintain or possibly modestly accelerate its mid-20% growth rate in the upcoming quarters as a key reason for the upgrade. Despite acknowledging that Datadog's shares are not inexpensive, trading at 10 times estimated 2026 revenues and 34 times estimated 2026 free cash flow, he sees room for upside. This optimism is based on the expectation that revenue growth estimates for 2025 and 2026 could increase to the range of 25-30% from the current 25-26%.
The analyst's positive outlook is bolstered by the anticipation of a broader industry recovery. With spending in the cloud infrastructure sector projected to improve in the latter half of the year, Datadog is well-positioned to benefit from these trends. The company's growth is expected to be driven by its ability to capitalize on the increasing demand for cloud services provided by Amazon (NASDAQ:AMZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT)'s Azure.
UBS's revised price target reflects a more bullish stance on Datadog's financial performance and market position. The firm's projections are now approximately 200 basis points higher than the consensus, indicating a belief in the company's ability to outperform market expectations. Keirstead's comments underscore the potential for revenue growth acceleration, which could lead to a reevaluation of the stock's value.
Investors and market watchers will be paying close attention to Datadog's performance in the coming quarters, as the company aims to capitalize on the favorable conditions outlined by UBS. The stock's trajectory will likely be influenced by the broader industry's recovery and Datadog's execution of its growth strategy in the cloud infrastructure space.
In other recent news, Datadog has been the subject of favorable attention from analysts. BofA Securities maintained its Buy rating and $155.00 stock price target for the company, based on a survey of Datadog customers that indicated robust demand for the company's services and plans for increased product adoption. Additionally, DA Davidson upgraded Datadog from Neutral to Buy and increased its price target from $115 to $140, reflecting confidence in Datadog's sustained growth potential.
Notably, Datadog has also outlined its strategic focus, which includes plans for AI integration. The company's CFO, David Obstler, emphasized Datadog'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.
These recent developments underscore Datadog's strategic positioning and the confidence of analysts in the company's growth trajectory. BofA Securities and DA Davidson's positive outlooks are based on Datadog's strong performance, broad product portfolio, and the growing adoption among its customers. However, it's important to note that these are projections and actual results may vary.
InvestingPro Insights
Datadog's financial metrics and market position align well with UBS's bullish outlook. According to InvestingPro data, the company's revenue growth remains strong at 26.18% over the last twelve months, with quarterly growth of 26.66% in Q2 2024. This supports Keirstead's expectation of Datadog maintaining its mid-20% growth rate.
The company's impressive gross profit margin of 81.57% demonstrates its operational efficiency, which could contribute to improved profitability as revenue scales. This is particularly relevant given the InvestingPro Tip that Datadog's net income is expected to grow this year.
Another InvestingPro Tip highlights that 27 analysts have revised their earnings upwards for the upcoming period, aligning with UBS's optimistic view. This consensus among analysts suggests growing confidence in Datadog's near-term performance.
While Keirstead acknowledges that Datadog's shares are not inexpensive, the company's strong financial position is evident from another InvestingPro Tip, which notes that Datadog holds more cash than debt on its balance sheet. This financial flexibility could support future growth initiatives and help the company capitalize on the anticipated industry recovery.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Datadog, providing a deeper understanding of the company's financial health and market position.
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