We recently came across a bullish thesis on Datadog Inc (DDGO) on ValueInvestorsClub. In this article we will summarize the bulls’ thesis on DDOG. DDOG shares were trading at $120 when this thesis was published, vs. closing price of $112 on Aug 12.
Datadog, Inc. operates an observability and security platform for cloud applications in North America and internationally. The company’s products comprise infrastructure and application performance monitoring, log management, digital experience monitoring, continuous profiler, database monitoring, data streams and universal service monitoring, network monitoring, incident management, workflow automation, observability pipelines, cloud cost and cloud security management, application security management, cloud SIEM, sensitive data scanner, and CI visibility.
A close-up of a laptop with a software engineer coding on the monitor.
Significant cross-sell potential
The company’s market opportunity is substantial, with less than 5% of the total addressable market penetrated. Datadog’s main products, such as infrastructure monitoring, log management, and application performance monitoring, have significant cross-sell potential. Additionally, the competitive landscape changes, like Splunk’s acquisition by Cisco, may benefit Datadog.
For the last reported Q1, revenue increased by 27% year over year with an even stronger momentum in earnings per share (EPS) of $0.44, more than double the $0.23 result in the prior-year quarter.
Potential revenue growth of 27%+ CAGR from 2023-28E
Valuation considers ARR growth driven by existing and new customers, with potential revenue growth of 27%+ CAGR from 2023-28E. Potential catalysts for growth include increased security product adoption, easing of cloud optimization trends, new customer acquisition, and gains in market share.
Datadog’s customer-centric approach has yielded impressive results, particularly in attracting and retaining high-value clients. As of the first quarter of 2024, the company reported 3,340 customers with an annual run rate (ARR) of $100,000 or more, representing a 14.8% year-over-year increase. These customers accounted for approximately 87% of the total ARR, underscoring Datadog’s success in capturing enterprise-level business
The company’s multi-product strategy has shown strong adoption, with 82% of customers using two or more products as of Mar 31, 2024, up from 81% in the previous year. Moreover, 47% of customers utilized four or more products, compared to 43% in the year-ago quarter, indicating successful cross-selling and upselling efforts.
As businesses increasingly adopt multi-cloud and hybrid cloud strategies, Datadog’s comprehensive observability solutions across different cloud environments position the company for continued growth. By aligning itself with industry giants like Amazon, Google and Microsoft, Datadog has established itself as a trusted partner for organizations, helping them navigate the complexities of modern cloud architectures and setting the stage for sustained success in the evolving cloud monitoring and analytics market.
DDOG is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 77 hedge fund portfolios held IGT at the end of the first quarter which was 72 in the previous quarter. While we acknowledge the potential of DDOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as DDOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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