Benzinga - by Anusuya Lahiri, Benzinga Editor. Rosenblatt analyst Blair Abernethy maintained Datadog Inc (NASDAQ: DDOG) with a Buy and lowered the price target from $110 to $105.
On Tuesday, Datadog reported Q2 results that were marginally better than expected. However, continued macro cloud adoption headwinds led to a weaker second-half outlook as recent usage growth from existing customers was lower than in previous quarters.
Management saw signs that cloud optimization efforts may be waning, particularly in those customers that began optimizing a year ago but could still secure healthy new logo bookings in the quarter.
Revenue for FY23 is $2.05 billion - $2.06 billion or ~2% below pre-quarter expectations. After the results, the analyst trimmed his FY23 and FY24 revenue forecasts by ~2%.
Mizuho analyst Gregg Moskowitz reiterated a Buy rating and cut the price target to $98 from $112.
The 2Q revenue grew 25% Y/Y to $510 million, above Moskowitz's and the Street's $502 million forecast, but the beat was more modest than expected.
Although optimizations were somewhat elevated earlier in the quarter, usage trends improved in June and July. Nevertheless, DDOG lowered its 2023 revenue outlook slightly, contributing to the steep 18% intraday sell-off. He believes DDOG enables customers to benefit from some of the most compelling trends in software: cloud, DevOps, and analytics.
The analyst remains optimistic about DDOG's positioning in a large and attractive market and expects Q3 revenue of $523 million (prior $533 million) and Q4 revenue of $542 million (prior $578 million).
KeyBanc analyst Michael Turits reiterated Sector Weight.
The re-rating followed a slight 2Q beat, but a $35 million FY23 guide is below. After usage growth had recovered in 1Q from lower 4Q levels, usage in 2Q slowed Q/Q and was below management expectations.
The deceleration likely disappointed investors after the 1Q pickup and improving usage trends from other companies, including Microsoft Corp (NASDAQ: MSFT).
Management cited some green shoots, including usage improving from a low in May into June/July and growth stabilization from cloud natives that began optimizing a year ago.
New logo bookings had their second-strongest quarter in company history, which should benefit long-term growth. 2023 revenue guidance lowered to 23% growth from 25% at the MP, implying a 15% Y/Y exit rate.
In the long term, revenue can reaccelerate as other cohorts endorse their optimizations. Still, in an increasingly competitive observability market, that could challenge margin expansion given the competition and the S&M and R&D investment to broaden beyond core observability.
KeyBanc expects Q3 revenue of $523 million (prior $533 million) and Q4 revenue of $541 million (prior $575 million).
Price Action: DDOG shares traded lower by 0.92% at $87.22 on the last check Wednesday.
Latest Ratings for DDOG
| Feb 2022 | Goldman Sachs | Reiterates | Buy | |
| Feb 2022 | Morgan Stanley | Maintains | Overweight | |
| Feb 2022 | Goldman Sachs | Maintains | Buy |
View the Latest Analyst Ratings
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