Yet Another Stock Downgrade For Datadog - Analyst Sees Optimization Challenges Amis High Growth Expectations

Baird analyst William Power downgraded Datadog Inc DDOG from Outperform to Neutral and lowered the price target from $100 to $84.

While there are still multiple long-term positives, Power's industry conversations suggest optimization headwinds are likely to continue into next year. 

Also Read: Datadog's FY24 Revenue Consensus Do Not Align With Management's Historical Guidance Trends - This Analyst Downgrades Stock

In addition, the analyst said that consensus growth expectations for 2024 are too high. While there have been growing concerns, he expects that to remain an overhang. 

Hyperscaler comments mixed, the analyst notes. Amazon.Com Inc AMZN AWS growth held flat sequentially, though comments suggested slowing optimization activity and growing generative AI traction. Microsoft Corp MSFT Azure growth beat expectations, with generative AI strength helping offset ongoing optimization headwinds. Alphabet Inc GOOG GOOGL Google Cloud growth decelerated, noting lasting optimization impacts.

Consensus calls for 22.3% revenue growth in 2024, a significant acceleration from consensus growth of 18.1% in the second half of 2023.

DDOG has the most significant assumed jump in growth rates between the second half of this year and 2024 across the analyst's Cloud Data coverage.

DDOG possesses the broadest observability platform, with security and other areas still in the early stages, the analyst points out. It also generates solid adjusted profitability and cash flow. 

The previously noted July improvements could be more impactful than realized. And while Power expects the company to benefit from generative AI, that could generate more upside next year than forecasted.

Power projects Q3 revenue of $522.87 million vs. consensus $543.39 million and EPS of $0.34 vs. consensus $0.35.

Price Action: DDOG shares traded lower by 1.40% at $80.54 on the last check Monday.