Datadog rises even as Piper Sandler sees 'little room for upside'
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Datadog (NASDAQ:DDOG) shares rose more than 1% in premarket trading on Tuesday even as Piper Sandler said there is "little room for upside" at current levels.
Analyst Rob Owens initiated coverage on Datadog (DDOG) shares with a neutral rating and a per-share price target of $72, noting that while the company has built the "preeminent cloud-focused observability platform," it's unlikely it will meaningfully beat expectations.
"[W]e believe longer-term consensus expectations that call for a multi-year acceleration past 2023 have diverged from [infrastructure-as-a-service] expectations, and the level of upside to guidance in 2023 may be less than many are looking for, driving minimal/negative leverage in the model while investor preferences continue to favor improving profitability stories," Owens wrote in an investor note.
Delving deeper, Owens noted that Datadog's (DDOG) expanding portfolio (it now has 17 different SKUs) has worked well with customers, as 42% of customers now have four or more products, up from 22% in 2020. The company is also seeing strong net retention revenue levels of greater than 130% in every quarter since going public in 2019.
Owens also noted that Datadog's (DDOG) total addressable market is growing at a healthy 11% compound annual clip and could reach $62B by 2026, up from $41B presently.
"We believe the market for cloud-native observability solutions will outpace the overall market [compound annual growth rate] as organizations continue to migrate to the cloud, driving a durable 20%+ growth opportunity for DDOG over the next 5+ years," Owens added. 
Earlier this month, investment firm D.A. Davidson started coverage on Datadog (DDOG) with a neutral rating, citing short-term caution amid economic uncertainty.