Datadog(DDOG) Valuation Analysis

Datadog(DDOG) Valuation Analysis

At a time when uncertainty is high and the stock market is falling, you need to invest with a long-term perspective. If you invest in stocks for short-term returns, you will inevitably incur losses. In order to invest in the long term, the first thing to do is to find a company with sustainable growth. This is because a company that does not achieve sustainable growth will inevitably lose its value. I’ve mentioned several companies in this blog that are good companies to invest in with a long-term perspective.

Datadog (DDOG) provides a platform that monitors cloud services in real-time and helps you troubleshoot when performance is degraded or security issues are identified. Enterprises using cloud services can analyze data from the entire cloud system and identify security breaches through the Datadog dashboard to maintain a high-quality user experience and operate Internet services in an optimal state.

The Internet services we use, such as Spotify, Netflix, and YouTube, will grow even bigger in the future. In the future, it will be a common sight to see a movie in a theater implemented in virtual reality.

Internet service must be accessible in any country at a stable and high speed, but it is difficult for all Internet companies to operate their own data centers. Therefore, these companies have no choice but to use commercial cloud services provided by Amazon, Microsoft, Google, etc. However, as multi-cloud or hybrid cloud, which uses multiple cloud services simultaneously, has become a new trend these days, it is not easy to manage reliably as the service scale grows.

In this situation, the number of Internet companies using the Datadog platform will inevitably increase, which is why I positively evaluate the growth potential of Datadog.


1. Datadog Growth Strategy

The US stock market fell as the FOMC recently raised interest rates. Tech companies that are classified as growth stocks have seen more declines in stock prices. Datadog, like other tech companies, has also suffered a share price decline, which is about 54% lower this year.

Datadog has been showing solid growth since the past, unlike other overvalued technology companies. As the cloud industry develops, the Datadog platform will inevitably become a necessity for enterprises, and for this reason, the Datadog growth engine can be maintained.

Datadog, which started as a cloud monitoring platform, is expanding its platform by adding additional modules such as user experience and security solutions. It is similar to the strategy of platform companies such as Cloudflare, Crowdstrike, and Palantir to modularize their platforms to increase the cost of existing customers.

The growing number of Datadog customers is positive, but even more positive is the growing cost per customer. According to the Q1 earnings announcement, 35% of all customers were using 4 or more modules on the Datadog platform. A year ago, only 25% used 4 or more modules.

2. Datadog Growth Scale

This Datadog growth strategy has been confirmed by its good business performance. Datadog’s total revenue for the first quarter was $336 million, an increase of 83% compared to the same period last year. In addition, net income for the first quarter was $9.7 million, a turnaround from a net loss of $13 million in the same period last year. The company’s free cash flow increased 192% to $130 million. Datadog’s growth scale is unmatched by any other technology company.

The global cloud monitoring market size is expected to grow from $42 billion today to $53 billion by 2025. Data Dog must continuously conduct R&D to develop its technology so that it can eat a bigger pie in this market. Although there are competitors, Datadog spends a significant portion of its revenues on research and development, so it will be able to maintain an edge over its competitors.

As of May 2022, Datadog expects total annual revenue of $1.61 billion. This surpasses the market forecast of $1.53 billion and represents a 50% increase over last year’s $1 billion in sales. The market expects the company to grow more than 50% by 2023, and will continue to grow rapidly thereafter.

3. Valuation

Datadog stock price has recently fallen. The stock price may fall further than it is now, but the monitoring market will grow more than now, and the Datadog platform will support more modules and strengthen security functions to attract more corporate customers.

Investing in stocks is investing in the future of a company. Although Datadog is weak today, it could be a huge company in the future. Because Datadog’s business is essential to any business.


Original text: 데이터독(DDOG, Datadog) 투자가치 (2022년 5월)

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