Bernstein analysts said in a note Wednesday that it could be time to buy the dip in Datadog, Inc. (NASDAQ:DDOG) shares.
The analysts, who have an Outperform rating and a $127 price target on the stock, told investors in a note that they "wonder if this might be the last discount before more consistent optimism."
"We've emphasized the tie of Datadog and AWS," they said. "We heard nothing that makes us worried about this connection on the call or in broader checks: $-churn remains steady (low), cross-sell normal, and Datadog reported demand accelerated just one month after AWS (expected if they remain tied). If the street's optimism whispers for AWS are correct at 13-14% YoY growth in Q3'23, the coming quarter could significantly outperform."
They also noted that over the longer term, DDOG faces easier comps, "especially in Q4 and into FY24."
"If reports of cloud rationalization starting to tail off are correct, enterprise spending remains (no new macro hit), and the mix of customers benefits the company, they have the ability for NRR to get back >130%. Add to that a base level of new customers, and the company could be growing in the 40% range within a year (as AWS gets to high teens to 20% itself)," added the analysts.
"Margins should only go up in such a scenario, as hiring is unlikely to re-accelerate at a pace near revenue growth snap-back, setting up for a strong valuation," they concluded.