Will Wall Street’s Enthusiasm for Datadog Stock Result in Large Gains?

The Datadog stock (NASDAQ:DDOG) has lately sparked analyst interest.

Credit Suisse began coverage of Datadog stock (NASDAQ:DDOG) with an “outperform” rating on Friday. Earlier this week, Sterling Auty of Moffett Nathanson initiated coverage with a “buy” rating and a price target of $143, suggesting a 51.31% potential upside. In addition, middle-market investment bank Robert W. Baird initiated coverage of the stock (NASDAQ:DDOG) with a target price of $120 and a “outperform” rating.

Market Evaluation of Datadog Stock

Since announcing its second-quarter results on August 4, the Datadog stock (NASDAQ:DDOG) has lost momentum. Earnings per share were $0.24, a 167% increase over the previous quarter.

Revenue was $406.14 million, much above the average expectation of $381.28 million. This was a 74% rise year over year.

The company’s profits increased by 80% to 300% in the last five quarters. In the previous eight quarters, revenue increased at high double-digit rates.

Datadog highlighted many new service collaborations and advancements in its earnings announcement. It also said that it had around 2,420 clients with annual recurring revenue of $100,000 or more, a 54% increase over the previous quarter.

Wall Street predicts a profit of $0.80 per share for the whole year, a 67% rise. This is expected to rise 34% to $1.07 per share in 2023.

What caused the Datadog stock to fall?

Obviously, part of the rationale is the same for most stocks: concerns about interest rates, inflation, recession, and a general market downturn.

However, in the case of Datadog, there was some company-specific news that disappointed investors: the company’s outlook was only in line with expectations rather than exceeding them.

Datadog issued the following third-quarter guidance:

Revenue of $410 million to $414 million.

The non-GAAP operating income ranges from $51 million to $55 million.

Net income per share non-GAAP between $0.15 and $0.17

It anticipates the following for the whole year:

Revenue of $1.61 billion to $1.63 billion.

Non-GAAP operating income ranges from $255 to $275 million.

Non-GAAP net income per share ranges from $0.74 to $0.81.

For the whole year, net income is likely to fall short of analyst projections, which would be a huge disappointment.

Nonetheless, Wall Street clearly believes in the company, as seen by the lofty average price target of $148.36, or a potential upside of 67.26%.

Even though it just went public three years ago, Datadog’s market capitalization of $28.30 billion places it among the top corporate software producers in terms of valuation. Salesforce (NYSE: CRM), SAP (NYSE: SAP), ServiceNow (NYSE: NOW), Snowflake (NYSE: SNOW), Workday (NASDAQ: WDAY), and Shopify are all ahead of it (NYSE: SHOP). Several sector rivals have lower valuations, including well-known businesses like Asana (NYSE: ASAN) and Twilio (NYSE: TWLO).

Datadog is an excellent watchlist candidate for the next market rally since it is a relatively young firm in development mode and one that institutions trust.

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About the author: Okoro Chinedu is a freelance writer specializing in health and finance, with a keen interest in cryptocurrency and blockchain technology. He has worked in content creation and digital journalism. Since 2019, he has written on various online platforms, and his work has been recognized by several important media sources and specialists in finance and crypto. In addition to writing, Chinedu enjoys reading, playing football, posing as a medical student, and traveling.