Summary
- Datadog's rapid pace of innovation has been tough to match.
- Beyond the cost optimization initiatives by customers, competitors will also challenge Datadog's pricing power.
- Regardless, the customer will continue to use its strengthened balance sheet to drive innovation.
- A combination of market oversubscription and pressure from competitors will challenge multiples expansion in the coming quarters.
- It is time to separate the pros from the speculators.
Source: SiliconANGLE
The honeymoon phase appears to be coming to an interesting end. The coming quarters will test the resilience of growth investors. After New Relic's (NEWR) recent pricing tweaks, we expect other competitors to adopt new strategies to play the long-term game. Regardless of the outcome, we don't expect Datadog (DDOG) to relax its pace of innovation. Compared to its peers, Datadog's valuation is on the high side. Relying on multiples expansion to achieve more returns is riskier in the near term. Potential pricing moves by competitors will weaken the company's growth factor until its customers become familiar with its new capabilities. It is time for speculators to rethink their strategies.
Demand (Bullish)
Datadog's growth factor has been tested by macro headwinds rocking business models across the globe. The Q2'20 results confirmed the resilience of the company's business model. Datadog's strong brand positioning and the rapid pace of innovation will continue to drive future growth. The near-term headwind to product usage growth represents a test for growth investors to recalibrate their risk appetite. Regardless, Datadog's growing capabilities make the long-term growth story reassuring.
Going forward, the company is guiding for 50% revenue growth in Q3, and FY'20 revenue growth of 57%. Compared to peers, Datadog's growth factor remains the most attractive. The product updates announced at Dash 2020 point to its unrelenting resolve to expand the breadth of its capabilities into the SecOps space. While these developments are encouraging, New Relic's move to redefine what passes for sustainable innovation in the DevOps space is a huge risk to all market participants.
