Datadog: Stifel cuts PT,  downgrades to ’Hold’ on moderating revenue growth

Published 29/01/2025, 02:36
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Investing.com--Stifel analysts lowered their price target and downgraded rating for the cloud observability and monitoring firm Datadog Inc (NASDAQ:DDOG), citing expectations of moderating revenue growth and margin headwinds in fiscal year 2025.

Stifel reduced its price target for the stock to $140 from $165, and downgraded to "Hold" from "Buy".

While Datadog’s relative stock performance has been strong, rising approximately 10% since its Q3 earnings release in early November, Stifel analysts foresee revenue growth and margin pressures creating headwinds in the coming quarters.

One key challenge stems from Datadog’s contract renewal with OpenAI, analysts said in a note. Stifel’s checks suggest OpenAI has significantly optimized its usage of Datadog’s platform, which is expected to limit year-over-year revenue growth from this account.

Analysts estimate OpenAI’s annual contribution at around $80 million but caution there could be a quarter-over-quarter revenue dip in the first quarter as the new contract terms take effect.

Beyond OpenAI, Stifel pointed to potential revenue pressures from broader pricing pressures across Datadog’s customer base and the risk of year-end churn. These factors are expected to weigh on the company’s linkage to Amazon (NASDAQ:AMZN) Web Services (AWS) growth throughout 2025.

On the margin front, Stifel sees a need for Datadog to accelerate its sales and marketing (S&M) investments after limited headcount growth in 2023.

Stifel believes maintaining stable fiscal 2025 operating margins at approximately 25% could be "overly optimistic" given the required ramp in sales investments to support future revenue growth.

Stifel views Datadog’s risk-reward profile as increasingly stretched, with limited near-term upside to revenue forecasts.

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