Datadog’s Demand Trends Looking Better, Raises Target Price to $120: Morgan Stanley

Morgan Stanley raised their stock price forecast on Datadog Inc, a monitoring and security platform for cloud applications, to $120 from $112 and said there were several positives out of Q4 earnings that suggest that the New York City-based company is emerging out of the rough patch seen in the summer of 2020.

On Friday, the company which offers a cloud analytics platform for customers that include Cornell University, Samsung and Whole Foods reported quarterly adjusted earnings of $0.60 per share in the last quarter of 2020, beating the Wall Street consensus estimates of $0.20 per share. Datadog said its revenue surged more than 55% to $177.53 million from a year ago​, also above the market expectations of $163.56 million.

“Closing 2020 with 56% rev growth supported by customer expansion returning to pre-pandemic levels and record new logo additions suggests momentum heading into 2021. However, initial guidance calling for 37-38% growth, while conservative, likely isn’t enough to fuel shares higher at 34x CY22 sales,” wrote Sanjit Singh, equity analyst at Morgan Stanley.

“The FY21 revenue outlook calls for 38% growth at the high end of guidance compared to 66% growth in 2020 which we think reflects 1) tougher compares in 1H, 2) lingering headwinds from slower customer expansion trends in 2Q20 and 3) general conservatism on the still difficult to predict spending environment. Taking this into account, we view FY21 guidance as conservative and see the current trajectory of growth given recent outperformance consistent with mid-to-high 40% revenue growth for the full year. However, at ~34x CY21e sales, we think shares currently anticipate this level of growth in 2021, leaving us waiting for a more material pullback.”

Datadog’s shares, which surged over 160% in 2020, had risen about 15% so far this year. However, the stock closed 4.03% lower at $112.86 on Friday.

Fourteen analysts who offered stock ratings for Datadog in the last three months forecast the average price in 12 months at $119.09 with a high forecast of $141.00 and a low forecast of $95.00.

The average price target represents a 5.52% increase from the last price of $112.86. From those 14 equity analysts, six rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $120 with a high of $180 under a bull scenario and $40 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the IT company’s stock.

Other equity analysts also recently updated their stock outlook. Stifel raised the stock price forecast to $120 from $100. Truist Securities upped the price objective to $125 from $120. Needham increased the target price to $141 from $109.

In addition, Mizuho raised the target price to $135 from $115. Berenberg upped the target price to $111 from $103. RBC increased the target price to $120 from $110. Barclays upped the price objective to $135 from $115.

“Leading Product in a Growing Market Supports Continued Rapid Growth. Datadog has positioned itself as the leading observability platform for most modern cloud environments. Strong secular tailwinds towards modern performance monitoring with the re-platforming to the cloud creates an underpenetrated market that we estimate at >$30 billion, supporting our 30%+ annual revenue forecast through CY23,” Morgan Stanley’s Singh added.

“However, Shares Fairly Incorporate Growth and Unit Economics At Current Levels. DDOG is currently trading at ~34x EV/CY22e sales, a premium to high-growth SaaS peers at ~30x. We believe that a ~34x multiple reflects investor expectations that build in a significant outperformance, keeping us EW.”

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