Shares of Datadog Inc (NASDAQ: DDOG) surged significantly on Thursday, responding positively to a key analyst rating revision and optimistic earnings projections. Brad Reback, an analyst at Stifel, upgraded Datadog's rating from Hold to Buy while simultaneously adjusting the price target downward from $205 to $160. This unexpected combination was driven by recent evaluation of Datadog's core business momentum, which suggests accelerating growth within its principal revenue streams.
The strong performance in Datadog’s stock reflects investor interest fueled by robust fundamentals in the company’s core offerings. Reback's review highlights a critical acceleration in core revenue growth, excluding generative AI components, reaching a 20% increase year-over-year last quarter. Such growth is notable given market pressures and competition in the observability space.
Integral to the positive outlook was Datadog’s success in new customer acquisition. Annualized bookings from new logos more than doubled, an indicator of expanding market penetration and adoption. Reback expressed confidence that management will sustain, if not increase, sales and marketing investments to capitalize on this momentum and further drive customer growth.
Beyond the core revenue streams, Datadog is actively diversifying its portfolio through innovative product introductions. New initiatives such as CloudPrem, DEX, Security, Service Management, and Bits AI alongside other go-to-market strategies aimed at enterprise and international segments are expected to supplement existing revenue bases effectively. These additional offerings demonstrate management’s strategic discipline in broadening the company’s market footprint and reducing reliance on any single revenue source.
Competition within the observability sector remains intense, with significant moves like Palo Alto Networks' acquisition of Chronosphere and Snowflake’s purchase of Observe shaping the landscape. These developments contribute to concerns around increased market crowding and downward pressure on pricing. Yet, Reback assessed the immediate effects on Datadog as limited, underpinned by the company's success in working closely with customers to implement value-based pricing strategies that resist broad pricing compression in the medium term.
Looking ahead, Datadog’s earnings report, expected in early February, is forecasted to outperform analysts’ expectations by approximately 4%. Reback's projections for the full year 2026 estimate core revenue at $3.72 billion, with total revenue reaching $4.08 billion. These figures align closely with consensus revenue estimates near $4.1 billion, signaling solid growth prospects despite adjusted price targets. Furthermore, according to Benzinga data, the consensus on earnings per share stands at 56 cents, while anticipated revenue is approximately $916.74 million. Datadog’s historical trend of beating earnings estimates adds to the investor confidence exhibited by the recent stock price increase.
As of Thursday trading, Datadog's shares rose by 7.05%, trading at $132.17. The notable uptick reflects market optimism following the analyst upgrade and the promising earnings outlook. The stock’s momentum underscores a favorable reception among investors valuing the accelerating growth rates and strategic innovation within Datadog’s offerings.
In summary, Datadog is benefiting from strong operational execution characterized by accelerating core growth, substantial new customer acquisition, and expansion through additional product lines. While competition and pricing pressures present challenges, management’s ability to maintain value-based pricing and capitalize on new market segments positions the company for continued success. Investors appear to be responding positively to these developments, as reflected in recent trading activity and analyst sentiment.