UPDATE: Bernstein Starts Datadog (DDOG) at Outperform, Top Pick

(Updated - July 20, 2022 5:35 AM EDT)

Bernstein analyst Peter Weed initiates coverage on Datadog (NASDAQ: DDOG) with a Outperform rating and a price target of $172.00.

The analyst comments "We are bullish on Datadog for its rapidly expanding TAM, a Product Led Growth ("PLG") commercial model and large secular tailwinds. As Datadog's customer base re-accelerated IT cloud migration and new application deployment projects that had been delayed during COVID, we expect its revenue to follow suit. Pre-COVID growth rates were solidly above 80% YoY, and the last couple quarters saw these rates reemerge, even at >$1B TTM revenue. The management continues to guide aggressively (56% YoY growth FY22 vs. FY21). However, we believe the guidance is quite cautious in the absence of an externality (i.e. a real recession), and find it credible that they will remain above 70% YoY revenue growth for FY22, and above 50% YoY through FY24. We see them tailing to "just" mid-40% range by FY25 at a $6B+ revenue scale with significant forward visibility to continued growth as they enable two of the largest secular mega-trends ("Software eating the world" and "Migration to Cloud-first IT infrastructure"). Our revenue estimates are 9% above consensus in FY2022E and ~50% above consensus in FY2025E. In addition, we also expect NonGAAP OP Profit to be 39% above consensus in FY2022E and gradually increase to 140% above consensus by FY2025E. However, the story is not without current macro uncertainties. As demonstrated during COVID, the secular trends that Datadog benefits from saw severe headwinds during a market disruption. The impact was most acutely felt in expansion of the existing base, but not materially in new customer adoption. We estimate in the worst case scenario ('08-09 as a comparison), we might see as much as 2/3+ drop in revenue growth for ~1 year, before it re-accelerates and some customers actually catch up on missed spend driving growth above the expected trend line. The impact lopps $0.6B off the 2025 revenue estimates, leaving us still ~34% above current FY2025E consensus."

For an analyst ratings summary and ratings history on Datadog click here. For more ratings news on Datadog click here.

Shares of Datadog closed at $91.04 yesterday.

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