9) Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 71
Average Upside Potential: 10.3%
Datadog, Inc. (NASDAQ:DDOG) focuses on operating an observability and security platform for cloud applications. It provides critical tools and services for cloud infrastructure monitoring and management. Datadog, Inc. (NASDAQ:DDOG)’s broad portfolio of products, including infrastructure monitoring, application performance monitoring (APM), log management, and security monitoring creates cross-selling and upselling opportunities. Therefore, companies tend to adopt Datadog, Inc. (NASDAQ:DDOG)’s products as their cloud environments become more complex.
Datadog, Inc. (NASDAQ:DDOG) continues to benefit from new customer additions and higher adoption of the cloud-based monitoring and analytics platform, courtesy of accelerated digital transformation and cloud migration throughout organizations. The company’s solid adoption of Synthetics and Network Performance Monitoring products should help it in customer wins. Datadog, Inc. (NASDAQ:DDOG)’s Synthetics product simulates user interactions and API calls to point out performance issues before impacting real users.
Datadog, Inc. (NASDAQ:DDOG) continues to execute on growth throughout the 3 pillars of observability and it reported that infrastructure monitoring or APM suite and log management together represent over $2.5 billion in ARR. Within the APM suite, the company includes core APM, Synthetics, real user monitoring, and continuous profiler. The company’s network performance monitoring (NPM) product offers visibility into network performance, supporting companies to monitor traffic flows and optimize network usage. The company can combine NPM with observability and security in a single platform. This supports it in differentiating it from standalone NPM tools, which helps in bringing in new customers and cementing its market share.
Brown Capital Management, an investment management company, released its third quarter 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.”
