On Thursday, Rosenblatt analyst Blair Abernethy increased the stock price target for Datadog (NASDAQ:DDOG), a cloud-based monitoring and analytics platform, to $148 from $140 while maintaining a Buy rating on the stock. The adjustment follows Datadog's reported revenue growth of 26% in the third quarter, which was around 4% above the firm's estimates and contributed to robust operating margins.
Datadog's performance was bolstered by a notable rise in customers adopting AI-native applications, which accounted for 6% of the company's Annual Recurring Revenue (ARR) in Q3, up from 2.5% in the same period last year. The analyst believes that the core growth drivers for Datadog remain strong, including the continued adoption of its platform and new tools by existing customers.
The company's outlook for the fourth quarter indicates a more conservative year-over-year revenue growth projection of 20-21%, reflecting management's cautious approach in a challenging environment for closing deals.
However, the revenue growth guidance for the entire year has been revised upward to 25%, compared to the previous forecast of 23-24%. This revision suggests that Datadog is maintaining a cautious but positive outlook on its potential for growth.
Abernethy's report points to the belief that Datadog will sustain a growth rate of over 20% in the coming years. This expectation is based on several factors, including increased platform usage, the adoption of new tools by current customers, the completion of significant cloud optimization efforts, ongoing cloud migration, and the trend of users of stand-alone monitoring tools moving to more integrated platforms.
In summary, Rosenblatt's revised price target reflects the firm's confidence in Datadog's continued growth trajectory and the company's ability to navigate the current market conditions. The analyst's statement reiterates a positive stance on Datadog's stock at its current price point.
In other recent news, Datadog has been making significant strides in its financial growth. The company's third-quarter performance exhibited a 26% year-over-year revenue boost, hitting $690 million.
This growth was supported by an addition of about 2,400 new customers, with 3,490 customers contributing more than $100,000 in annual recurring revenue (ARR), making up 88% of the total ARR. Datadog's free cash flow remained strong at $204 million, indicating a 30% margin.
Barclays (LON:BARC) maintained its Overweight rating on Datadog, citing the company's solid performance, bolstered in part by its artificial intelligence (AI) capabilities. The firm also highlighted the broadening of Datadog's product portfolio, including newer areas such as Security Information and Event Management (SIEM).
Goldman Sachs (NYSE:GS) and DA Davidson both raised their price targets on Datadog shares, maintaining Buy ratings, and recognizing the company's strong financial performance and growth.
These recent developments reflect a positive outlook on Datadog's business prospects, innovation, and market position. The company's robust adoption of its platform, the launch of new products, and the strong pipeline for the fourth quarter are key growth drivers. However, the company has not provided specific guidance for 2025, focusing instead on building sales and engineering capacity.
InvestingPro Insights
Datadog's strong performance and positive outlook are further supported by recent data from InvestingPro. The company's revenue growth of 26.3% over the last twelve months aligns with the 26% growth reported in Q3, confirming the analyst's observations. Additionally, Datadog's impressive gross profit margin of 81.24% underscores its operational efficiency, which is crucial for sustaining growth in the competitive cloud monitoring space.
InvestingPro Tips highlight that Datadog holds more cash than debt on its balance sheet and has liquid assets exceeding short-term obligations. These factors contribute to the company's financial stability, potentially enabling it to invest in AI-native applications and other growth initiatives. Moreover, 17 analysts have revised their earnings upwards for the upcoming period, suggesting broader market confidence in Datadog's prospects.
For investors seeking a deeper understanding of Datadog's financial health and growth potential, InvestingPro offers 16 additional tips, providing a comprehensive analysis to inform investment decisions.
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