Datadog Inc. (DDOG) is a cloud-based security information and events management (SIEM) observability platform that helps developers, engineers, and IT departments monitor the performance of their data and operations infrastructure. The company’s AI-powered platform provides a comprehensive view of a client’s entire IT environment, simplifying troubleshooting and threat response. Datadog’s competitive advantage lies in its scalability and flexibility to integrate with various ecosystems, including major cloud providers like Amazon Web Services (AWS), Google Cloud, Microsoft Azure, and Oracle Cloud. This allows Datadog to provide a single source of truth for monitoring diverse and complex environments.
Datadog stands out with its unique ‘Bits AI’ generative AI interface, acting as a DevOps co-pilot. Bits AI assists in efficiently investigating and responding to incidents through conversational queries. It surfaces insights about the environment by correlating data across the Datadog platform, including metrics, events, logs, traces, user transactions, and security signals. This AI-powered co-pilot can diagnose issues, suggest automated code fixes, and help prevent future incidents, accelerating investigations and streamlining incident responses.
Datadog continues to experience robust double-digit growth. The company reported Q2 2024 EPS of 43 cents, exceeding consensus estimates by 6 cents. Its revenue surged 26.7% year-over-year (YoY) to $645.28 million, beating expectations by a significant margin. Non-GAAP operating margin reached 24%. Datadog also saw a 13% YoY growth in customers with annualized recurring revenue (ARR) over $100,000. The company’s platform adoption continues to grow, evidenced by the 1% increase in clients using two or more products and the 4% jump in customers using eight or more products, demonstrating the stickiness of its platform.
From a technical standpoint, DDOG stock has triggered an ascending triangle breakout. After multiple tests, the stock finally broke through the flat-top upper trendline resistance at $118.28, powered by the daily RSI rising towards the 70-band. Datadog’s average consensus price target is $140.85, with the highest analyst price target reaching $160.00. The stock currently trades at an expensive 292x forward earnings.
While Datadog’s growth story and AI innovation are compelling, investors need to consider the high valuation and volatile earnings nature of the company. Potential investors can consider using cash-secured puts to buy DDOG at fib pullback support levels, but should maintain stop-losses.
