4. Datadog, Inc. (NASDAQ:DDOG)
Average Price Target Upside: 31.35%
5-Year Revenue CAGR: 55.19%
Number of Hedge Fund Holders: 79
One of the best revenue growth stocks, Datadog, Inc. (NASDAQ:DDOG) runs an observability and security platform for cloud applications. It offers a suite of essential tools, including infrastructure monitoring, application performance monitoring (APM), log management, security monitoring, and digital experience monitoring. The solutions are essential for IT and DevOps teams striving to maintain reliable and efficient operations in increasingly complex environments.
In the first half of 2024, the company showed significant financial growth, with revenues rising nearly 27% year-over-year to reach $1.26 billion. The company also turned around its operating performance, reporting an operating income of $24.6 million compared to an operating loss of $57 million in the same period last year.
The improvement in financial health extended to net income, which climbed to $86.5 million, a stark contrast to the net loss of $28.1 million from a year prior. Additionally, free cash flow surged by 28% year-over-year, reaching $330.5 million, which shows the company’s ability to generate cash effectively.
To improve its service offerings and deepen customer loyalty, Datadog (NASDAQ:DDOG) has been proactive in launching new features. For example, the introduction of Data Jobs Monitoring allows data teams to detect job failures and optimize computing resources, ultimately leading to cost savings.
In June, the company also expanded its security product portfolio, which allows security teams to seamlessly access their code, cloud environments, and production applications. The additions improve the user experience and position the company as a go-to solution in a rapidly evolving market.
Management sees significant growth potential ahead, believing that the company currently holds just a 5% market share. With around 27,400 customers and a vast opportunity pool of over 530,000 potential global accounts, the market for cloud security solutions appears ripe for expansion.
The total addressable market for cloud security was estimated at approximately $21 billion in 2023, projected to grow at an annual rate of 16% through 2027. It suggests a favorable environment for continued growth as the company seeks to capture a larger share of this lucrative market.
43 analysts have given Datadog (NASDAQ:DDOG) a consensus Buy rating. The average price target of $150.00 has a 31.35% upside from the stock’s price on September 27.
Baron Opportunity Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its Q2 2024 investor letter:
“In our view, the enterprise software winners will have to be better at delivering AI services and features than build-your-own AI tools, and they will have to use their incumbency or leadership advantages to ward off upstarts. We believe the winners will be the ones that have a well-established product development culture of innovation and iteration; differentiated proprietary, industry, and customer data; distribution advantages with large customer bases, successful go-to-market efforts, and key partners; well-designed workflows where AI improves the user interface, intelligent predictions/recommendations, and automation; and established always-on connectivity and feedback from their customers; among other things.
Here are a few examples of our software investments that we believe are AI winners: Datadog, Inc. (NASDAQ:DDOG), a cloud observability platform that the leading LLM providers are using today to monitor their AI apps; these AI customers are already driving nearly $100 million of annual recurring revenue for Datadog already.”
