5) Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 71
Datadog, Inc. (NASDAQ:DDOG) caters to the SaaS industry as it provides cloud-based solutions that deliver software and services over the Internet instead of on-premises infrastructure. TD Cowen analyst Andrew Sherman maintained a “Buy” rating on the company’s shares, setting a price target of $165.00. The analyst believes that Datadog, Inc. (NASDAQ:DDOG) is expected to exceed revenue growth expectations, with Sherman forecasting a growth rate of ~25%. Despite the challenging environment, the analyst sees a solid Q4 2024 performance, courtesy of enterprise demand.
While concerns are there regarding AI-native optimizations affecting pricing on renewals, Sherman doesn’t expect this to be a major obstacle. Additionally, Datadog, Inc. (NASDAQ:DDOG)’s strategic growth in sales and marketing is being viewed as a positive indicator of demand, with industry checks revealing healthy retention trends and elevated spending intentions, says Sherman. With businesses transitioning from on-premises systems to cloud-based infrastructure, there will be increasing demand for tools monitoring and securing such environments. Datadog, Inc. (NASDAQ:DDOG)’s unified observability platform is well-placed to aid this transition.
One of the company’s key initiatives is the introduction of LLM Observability, which is a tool focused on monitoring and managing AI applications. Brown Capital Management, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“Other examples of negative sentiment include portfolio companies that reported earnings that met or exceeded expectations, but only saw their share prices go up slightly, stay flat or even decline. For example, Datadog, Inc. (NASDAQ:DDOG) is a leading SaaS-based, information technology (IT)-monitoring and analytics software platform for developers, IT operations and business users. The platform automates the monitoring of infrastructure, applications databases, networks, logs and security. Datadog’s platform is differentiated by providing a unified view of these systems via a visual interface configured to the needs of each user (i.e., a single pane of glass). Datadog delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising 2024 full year revenue, operating income and earnings guidance. Despite these solid fundamental results, Datadog’s share price was down 11.8% in the third quarter. We speculate that these market reactions are evidence of the negative environment for high-growth companies. For more, please see the Detractors section below.
Datadog, mentioned above, automates the monitoring of infrastructure, applications databases, networks, logs and security. The company delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising guidance for 2024 full-year revenue, operating income and earnings. Datadog noted improving consumption and demand trends among its enterprise customers and stabilizing trends among its small and mid-sized customers. On its earnings call, Datadog management disputed that it has interest in large acquisitions, notwithstanding news articles on July 17 that Gitlab was seeking a buyer and Datadog is among the potential suitors. Despite solid fundamental results, Datadog’s share price underperformed in the third quarter of 2024. This may be due to its premium valuation and investor worries about Datadog’s ability to sustain its current strong revenue growth in a softer economic environment. We remain confident in Datadog’s ability to deliver durable growth over the long term. We believe Datadog has a massive and underpenetrated total addressable market that is growing about 10% annually. We also believe Datadog has a strong competitive positioning in infrastructure monitoring and is gaining market share.”
