DDOG Inventory: Software program maker Datadog is driving cloud computing and AI tendencies

DDOG Inventory: Software program maker Datadog is driving cloud computing and AI tendencies

The previous few months have been filled with drama Datadog (DDOG) and traders in DDOG shares.


Shares of the software program maker fell greater than 17% on August 8 on weak expectations for the third quarter. Precisely three months later, on November 8, DDOG inventory rose greater than 28% when the identical quarter’s outcomes got here in higher than anticipated.

Now, as Datadog tries to get out of the cup that has held the deal with for practically a yr, the query is whether or not Wall Road’s view of the corporate’s 2024 income progress is just too rosy.

New York-based Datadog screens functions operating on cloud computing platforms. Software program firms and IT departments are the biggest consumers of the monitoring and evaluation instruments it provides.

Datadog works on Amazon.comAmazon Net Companies (AMZN), MicrosoftMSFT cloud platform Azure and the alphabetGoogle Cloud Companies (GOOGL).

Enterprises are reining in cloud spending

Datadog’s revenues boomed 70% in 2021 and 63% in 2022 amid the coronavirus emergency. Firms prioritized “digital transformation” initiatives throughout the shift to distant work, along with the e-commerce increase.

Nonetheless, beginning in mid-2022, many firms are again utilizing cloud providers. Wall Road typically refers to this as “optimization” by these firms. In 2023, analysts count on Datadog’s income to rise roughly 26%. Analysts estimate an additional slowdown in 2024, with gross sales progress reaching 22.5%.

That is the place buyer tendencies come into play. Within the third quarter, Datadog generated roughly 65% ​​of income from its present buyer base. The opposite 35% got here from new clients.

In a brilliant spot, Datadog stated the September quarter marked the second consecutive interval wherein it closed a report variety of new offers with annual contract commitments in extra of $100,000.

One other characteristic associated to synthetic intelligence. Each established expertise firms in addition to startups within the trade are launching AI pilot initiatives that create functions utilizing massive language fashions.

Datadog revealed its AI metrics for the primary time with DDOG inventory’s third-quarter outcomes. About 2.5% of annual recurring income comes from generative AI firms that use their very own cloud monitoring instruments to maintain their providers operating, Datadog stated. Moreover, Datadog says its AI buyer base is rising quickly.

Native Administration

“There are a variety of recent software program firms which can be growing instruments within the AI ​​stack and offering software program and providers to clients,” David Obstler, Datadog’s CFO, stated at a current RBC Capital convention. “One in all our areas of experience is monitoring current customer-facing improvement applications. So it is all the time good to have segments the place your product is absolutely good.”

Datadog CEO Olivier Baumel and CTO Alexis Le-Quoc co-founded the corporate in 2010. Earlier, the 2 labored at Wi-fi Technology, which constructed information techniques for colleges. They’re nonetheless on the helm of Datadog.

“We’re large followers of founder-led administration groups which can be aligned with shareholders (actual, significant inventory possession) however haven’t any voting management,” TD Coin analyst Andrew Sherman stated in a current be aware to purchasers.

He added: “We additionally spotlight the robust tenure of different executives, together with CFO David Obstler (5+ years), COO Adam Blitzer (2+ years), and Chief Income Officer Sean Walters (5+ years, and extra). From 1.5 years (CRO).

Datadog initially displaced bigger distributors akin to IBM (IBM), a privately held BMC Software program firm and Broadcom(AVGO) CA Associates by way of its cloud monitoring and analytics platform.

DOG Inventory: IPO in 2019

Datadog competes with, amongst others, Cisco Methods‘(CSCO) Utility Dynamics Module, Denatress (DT), New stays (new) and Splunk (SPLK), which was acquired by Cisco for $28 billion.

Datadog’s September 2019 IPO raised $648 million, with 24 million shares priced at $27. DDOG inventory reached an all-time excessive of 199.68 in November 2021.

Shares fell in 2022. However in 2023, Datadog inventory rose 48% after rebounding in its third-quarter report.

Datadog’s November 8 surge was helped partly by a brief squeeze after the bullish shock. Quick sellers benefit from falling shares by borrowing shares of firms they view as overvalued. They promote it, then purchase it again at a lower cost later.

Datadog Stock: Technical guidelines for buyer record

From its founding till right this moment, expertise firms have been Datadog’s largest clients, particularly enterprise software program firms. Amongst their non-technical purchasers, monetary providers firms are outstanding verticals.

datadogDatadog informed analysts that clients’ cloud spending optimization efforts have eased, main to higher tendencies in October. Amazon and Microsoft additionally famous bettering tendencies in third-quarter earnings calls with analysts.

“We have now a cloud-based consumption mannequin. Our revenues are tied to monitoring cloud workloads,” CFO Obstler stated on the RBC Capital convention. “This implies we’re broadly related to the workloads that undergo the hyperscalers in addition to how clients use the platform and all of the instruments. We have now been working for over a yr in a price administration (optimization) atmosphere.”

He added: “So we stated within the earnings name that we’re not declaring the tip of this era. We predict there’ll nonetheless be enchancment, as there all the time is, however among the denser areas have light.”

Comply with Reinhart Krauss on X, previously generally known as Twitter, @reinhardtk_tech For updates on synthetic intelligence, cybersecurity, and cloud computing.

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