Cloud services have begun to dominate the software industry, but does Datadog have the potential to race ahead of the rest?
They say that every dog has its day, and Datadog (NASDAQ: DDOG) finally managed to get its bone yesterday following a poor stock performance in recent weeks!
Following its explosive growth between January and all-time highs in October, it was hit with uncertainty around elections and stimulus, causing its share price to see-saw. Since the start of the year, however, the stock has been on a steady incline and with much optimism surrounding Joe Biden’s inauguration as the 46th U.S. President, analysts appear to be bullish once more.
Yesterday’s jump of 5.3% comes off the back of fresh coverage initiation by Truist Securities, which gave Datadog a buy rating and a price target of $120.
Should investors be concerned about volatility?
Datadog managed to close out the calendar year 2020 with gains of 160% following a series of stellar earnings reports and the signing of a potentially game-changing partnership with Microsoft.
It still has one glaring bear case though in the fact that for a company with such a high valuation, it is still not profitable — Datadog currently operates at 40 times 2021 sales. A lot of focus in the coming weeks will be put on its Q4 earnings report, which is expected to take place in mid-February. While revenue jumped 61% in the third quarter of last year, sales are forecast to increase by 62% for the full-year 2020. If this should be the case, then you can expect a lot of barking from investors who want to get in on the action.
While this is all short-term thinking, long-term investors should be looking at Datadog’s potential. As cloud-based services continue to take over the software industry, Datadog’s tools are becoming more and more crucial to operating a modern IT department. It’s not the only player in town, but it is a well-respected competitor for pretty much every contract in the cloud monitoring market — it even nabbed a game-changing Microsoft Azure contract in 2020. If you ask any data workers in your circle, they’ll all likely have great things to say about Datadog.
What’s more, according to 20 industry analysts that currently cover Datadog, the business is expected to turn a profit in 2023based on an assumed annual growth rate of 45% (bear in mind, these figures are estimates only and liable to change).
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