Stifel downgrades Datadog to Hold, prefers ServiceNow, Snowflake and others
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Stifel downgraded Datadog (NASDAQ:DDOG) to Hold from Buy and reduced the price target to $90 from $115.
On Tuesday Datadog, which provides security platform for cloud applications, reported Q2 results, which beat expectations, but the company reduced its FY23 revenue outlook.
Stifel's analysts noted that downgrading a stock after a ~17% decline is clearly suboptimal, with Datadog posting its slimmest top-line upside quarter ever (~2%) as the company highlighted a meaningful Q/Q decline in usage growth (NRR ~120% versus ~130% Q/Q) which runs counter to what the Hyperscalers and other consumption names have said the last few months. The analysts wonder if something company-specific is not happening within the installed base.
To Datadog's management's credit the H2'23 outlook is duly conservative, mainly Q4 (15% revenue growth, single digit NRR), however it is hard to envision multiple expansion until revenue growth reaccelerates and this is unlikely until at some point in 2024, the analysts added.
Due to this view, and the firm's belief that Datadog should now be seen as a 20% to 25% grower versus ~30% going into print, the analysts prefer companies such as ServiceNow (NOW), MongoDB (MDB), Snowflake (SNOW) and Dynatrace (DT) in the infrastructure space.
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