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On Monday, KeyBanc Capital Markets maintained its Sector Weight rating on Datadog (NASDAQ:DDOG) shares, with no change to the previously set price target. The cloud monitoring company, currently trading near its 52-week low at $87.93, has seen its stock decline by over 38% year-to-date. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value estimate. Eric Heath, a KeyBanc analyst, shared insights after a discussion with a premier partner of Datadog, highlighting several positive developments for the cloud-computing company.
The conversation revealed an acceleration in the migration of customers from Splunk (NASDAQ:SPLK) to Datadog for both logging and security services. This shift underscores Datadog’s growing presence in the observability market, which is still largely fragmented and presents opportunities for consolidation among modern and legacy competitors. The company’s strong market position is reflected in its impressive 80.81% gross profit margins and robust 26.12% revenue growth over the last twelve months.
The partner also expressed optimism regarding the interest in Datadog’s emerging products, particularly Flex (NASDAQ:FLEX) Logs and Datadog On-Call, as well as its security offerings. These new features are resonating with customers, with Flex Logs, for instance, credited for reducing logging costs by 35-40% in one implementation.
Despite the perception of Datadog’s solutions being costly, the partner noted that this sentiment has remained stable, and concerns over expense have not driven customers towards open-source or alternative providers. The partner emphasized that cost concerns typically revolve around logging, but recent feature enhancements are helping to alleviate these issues.
Regarding sales performance, the partner indicated that Datadog’s first quarter results were slightly below expectations, primarily due to a few deals with existing customers being deferred to the second quarter. However, these delays were not attributed to macroeconomic factors, and two of the postponed deals were concluded in the early days of the second quarter. Looking ahead, the partner reported a strong sales pipeline for the second quarter, including several potential new customers, although growth is not expected to match the levels seen in the first quarter. With earnings scheduled for May 1st, investors seeking deeper insights can access comprehensive analysis and 20+ additional ProTips through InvestingPro, including detailed financial health metrics and growth forecasts in the exclusive Pro Research Report.
In other recent news, Datadog announced the opening of its first data center in Australia, expected to be operational by mid-year. This expansion aims to enhance data sovereignty and compliance for local businesses, especially in regulated industries. In the realm of financial analysis, both DA Davidson and BofA Securities have maintained Buy ratings on Datadog, with price targets of $165 and $170, respectively. DA Davidson’s analyst emphasized Datadog’s potential for 20-25% growth over the next few years, while BofA Securities highlighted the company’s capacity for new product development and scaling as key advantages. Piper Sandler also reaffirmed a positive stance with an Overweight rating and a $160 price target, citing a favorable outlook after discussions with company executives. The firm noted that despite a recent drop in share price, Datadog presents an attractive risk/reward balance for investors. These developments reflect ongoing confidence in Datadog’s strategic positioning and growth prospects in the software sector.
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