Datadog's AI, Cloud Migration, Expanding Product Adoption Drive Analyst Confidence Despite Growth Volatility Concerns

Rosenblatt analyst Blair Abernethy maintained a buy on Datadog DDOG and lowered the price target from $160 to $150 on Sunday.

Datadog will report first-quarter 2025 results on May 6, before the market opens.

For the first quarter, Abernethy expected total revenue of $739.6 million (versus FactSet Consensus of $741.7 million, guidance: $737 million-$741 million), up 21% Y/Y organically.

Also Read: Datadog Q4 Earnings: Margins Shrink, Outlook Lags Expectations

Adjusted operating income of $164.9 million (versus FactSet Consensus of $166.5 million, guidance: $162 million-$166 million or ~22% operating margin), and EPS of $0.42 (versus FactSet Consensus of $0.43, guidance: $0.41-$0.43).

Datadog ended the fourth quarter with $4.2 billion in cash and $1.6 billion in debt, positioning it to continue funding its rapid growth and tucking in technology acquisitions.

Lately, Abernethy noted customers drove more measured investment in enterprise Digital Transformation projects and that demand for IT monitoring platforms and modern SIEM remained relatively stable.

The analyst noted recent strength in first-quarter CSP results, driven by cloud migration and new AI-driven workloads, as supportive of Datadog's first quarter.

Abernethy recalled that in the fourth quarter, AI drove 6% of Datadog's ARR (up from 3% last year).

Management cautioned that the rapid ramp-up in AI-driven applications could be followed by some optimization, creating growth volatility for Datadog this year.

Datadog has also stepped up its S&M investments this year and is steadily broadening its integrated product offering on its platform.

The analyst expects the customer count to grow ~5k to ~35k (30k in the fourth quarter), growth in its large customer count (3,610 in the fourth quarter with ARR of $100k+), and an NRR still in the high 110% range.

Abernethy expects a broadening of product adoption in first-quarter from 83% of customers using 2+ products in the fourth quarter (no change in a year ago level), 50% of customers using 4+ products in the fourth quarter (up from the 47% level a year ago) and 26% of customers using 6+ products in fourth-quarter (up from 22% last year), which the analyst noted supports retention levels and reflects IT monitoring platform vendor consolidation.

Datadog's $100k+ ARR customers (12% of its customer count) generate 88% of ARR.

Abernethy noted that Datadog's largest customers continue to provide additional growth opportunities through new product additions and expanded monitoring use cases, including AI-driven applications.

Given the challenging macro environment, the analyst expects Datadog to maintain its ~19% guide for organic revenue growth for 2025 and operating margins of ~20%.

Price Action: DDOG stock is up 1.36% at $106.42 at last check on Monday.

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