On Monday, Datadog Inc. (NASDAQ: DDOG) experienced a notable decline of 3.92%, ultimately concluding the trading session at a closing price of $90.73. This downward trajectory in Datadog’s stock value was primarily instigated by a revision in evaluation by Koji Ikeda, an analyst at Bank of America.
Ikeda, representing BoA’s analytical perspective, has expressed reservations regarding the consensus among Wall Street analysts pertaining to Datadog’s anticipated revenue growth for the year 2024. While market analysts collectively project a robust 23% revenue expansion, expected to reach $2.53 billion in 2024 for Datadog, Ikeda holds a more conservative estimate.
He anticipates a revenue figure of $2.4 billion for 2024, indicating a 5% reduction from the prevailing consensus. Furthermore, Ikeda’s projections for 2025 envision a revenue benchmark of $2.9 billion, reflecting his calculated assessment of the company’s financial outlook.
In its annual State of Serverless report, Datadog (DDOG) has discerned an enduring trend of growth and evolution within the serverless ecosystem. This evolution is particularly pronounced as organizations increasingly integrate container-based applications into serverless environments. Notably, over 70% of Datadog’s AWS customers, 60% of Google Cloud users, and almost 50% of Azure clients have adopted serverless solutions.
This widespread adoption extends across major cloud platforms and is expected to continue as organizations further embrace container-based frameworks, which are driving serverless ecosystem growth. Serverless technology is becoming versatile, capable of addressing a wider range of use cases.
Moreover, Datadog’s recent launch of “Bits,” a generative AI assistant, aims to revolutionize real-time issue resolution for engineers. Bits AI extracts insights from observability data, collaboration platforms, and various sources to swiftly provide answers, recommendations, and automated remediation steps in conversational language. This significantly streamlines complex problem-solving that typically demands hours or days.
Built with OpenAI’s technology, Bits AI offers engineers a potent tool to tackle intricate performance challenges. This innovation underscores Datadog’s commitment to enhancing observability and fostering efficient, AI-driven solutions in the evolving landscape of serverless technologies.
With the macroeconomic instability and geopolitical turmoil, investors are fretting over the uncertain outlook. Rising rates are driving investors toward safer blue-chip plays and dumping many growth stocks in the process. The tech-heavy Nasdaq Composite has squared itself into the bear market territory with losses nearing 30%. However, this brutal sell-off has also shrunk the valuations of the priciest growth stocks to more accessible levels. Thus, it presents a great opportunity to upgrade one’s investment portfolio, given that the near-term volatility is overlooked. Coming at a bargain price amid the volatile market situation is the cybersecurity growth stock, Datadog Inc. (DDOG).
Market Potential
In today’s digital-first and cloud-powered business world, cybersecurity companies are becoming highly essential. Cybersecurity plays a key role in the evolving digital transformation, cloud computing, and Web3. With the rapid technological changes due to the sustained hybrid work environment, the need for cybersecurity solutions is only going higher.
Estimated to have been $184.93 billion in 2021, the global cybersecurity market is expected to grow at a CAGR of 12% from 2022 to 2030. According to estimates by McKinsey & Company, $101.5 billion would be spent on cybersecurity service providers by 2025. And the cost related to cybercrime is anticipated to go up by 15% on an annual basis to reach $10.5 trillion in 2025. The report also said that 85% of small and mid-size enterprises would increase their IT security spending until 2023.
Moreover, the current geopolitical crisis due to the war on Ukraine is also proving a driving factor in the demand for cybersecurity services, as cyber-attacks are on the rise. Hence, the market opportunity is great and there’s huge potential for growth.
Datadog Inc. (DDOG)
DDOG is a SaaS monitoring and security platform for cloud applications that monitors databases, servers, and apps across organizations in real-time. Its growing portfolio of monitoring and security products is helping businesses run their operations smoothly with no disruptions.
Down over 50% year to date, the stock is currently valued at a price of $84.15 as per the pre-market data on May 26, 2022. At the time of writing, DDOG had declined by 5.16% in the session, hovering just above the new 52-week low it registered yesterday. Let’s have a look at what makes the stock a good buy.
Sway with customers
DDOG is becoming an essential part of modern-day business as more and more customers continue to adopt its products. Its products and services have been seeing strong customer momentum. According to Motley Fool, the adoption of its products has been increasing sequentially:
Source: Motley Fool
Moreover, as per the recent Q1 presentation of the company, its net dollar-retention rate topped 130% for the 19th consecutive quarter. Its new customers rose by more than 30% YOY to reach 19,800 in Q1 2022. Not just this, but the company’s high-value customers with over $100,000 in annual recurring revenue, grew by 60% to 2,250.
New Product Launches
DDOG has continued a steady stream of new products to enrich its portfolio of offerings and ensure deeper penetration into customers’ organizations. Recently, the company expanded its security products with Application Security Monitoring to protect against hackers. Extending its Watchdog AI Engine, the company also added multiple new features like root-cause analysis to it. The company has also extended its partnership with Microsoft for its Azure Adoption Framework.
Additionally, the company is further enhancing its application security with the inculcation of Hdiv Security’s capabilities. The company recently announced its plans for the acquisition of Hdiv.
Financial Overview
For the first quarter of 2022, the company came out with adjusted earnings of 24 cents per share while analysts were expecting 11 cents a share. The adjusted net income was $83.7 million, with a non-GAAP operating margin of 23%.
Increasing 83% YOY, the quarterly revenue of $363 million also surpassed the consensus estimate of $339 million. The company has been demonstrating a very rapid revenue growth since 2017.
Source: DDOG’s Q1 Presentation
Both the earnings and revenue came well above its own guidance of 10-12 cents a share on $334-$339 million, respectively.
At the end of the March quarter, DDOG’s cash, cash equivalents, restricted cash, and marketable securities totaled $1.7 billion.
Outlook
For the second quarter of 2022, DDOG is expecting earnings of $0.13-$0.15 per share on revenue of at least $376 million. Analysts had forecast earnings of $0.12 per share on sales of $362 million for the quarter.
The full-year expectations of the company lie at earnings of $0.70-$0.77 a share on sales of above $1.6 billion. Consensus estimates for the year are $0.52 per share on the sales of $1.5 billion.
Conclusion
Even if beaten down currently, DDOG checks all the right boxes to poise it for much growth in the future. It boasts a strong financial profile, customer growth & retention, a vast portfolio of offerings that continue to further expand, and a huge market opportunity.
