DataDog Upgraded by BTIG Amid Strong Checks and Splunk Displacement Opportunity

BTIG has upgraded Datadog, Inc. to a Buy rating from Neutral, setting a price target of $143 per share. This decision comes after positive findings from recent checks and an identified opportunity to displace competitors like Splunk.

The analysts at BTIG regard Datadog as a leading player in the observability market, anticipating significant growth driven by new products and features such as Flex Logs, LLM Monitoring, and Bits AI. They express confidence that Datadog is well-positioned to capture additional market share in this area.

Their research included discussions with ten partners, with a focus on five large enterprises, leading to several key insights. They noted that cloud cost optimization efforts are largely complete, which bodes well for future spending on observability solutions. Despite some disappointment in cloud growth from Microsoft, the overall trend among the top three hyperscale cloud providers indicates improving growth rates, providing a positive outlook for observability investments.

BTIG also believes that Datadog stands to gain market share from Splunk following its acquisition by Cisco. While the effects of this displacement might not be significantly felt until after 2024, BTIG sees a promising opportunity over the next three to four years. They estimate Datadog could potentially generate around $270 million in additional annual revenue from this shift, which could enhance the company’s growth rate by approximately 300 basis points per year until 2027.

Furthermore, positive field checks for Q2 2024 bolster BTIG’s optimistic projections for Datadog. Analysts anticipate that the company could achieve Q2 revenue of $644 million, representing a 26.4% increase year-over-year in a best-case scenario, compared to an average estimate of $625 million. For the full year, BTIG forecasts a 25% year-over-year revenue growth for Datadog, outpacing the general market estimate of 23%.