Cloud computing has become the heartbeat of the digital era, furnishing businesses with tools to navigate the complex online landscape. Datadog (NASDAQ: DDOG) has distinguished itself with a cloud monitoring platform that has become indispensable for large organizations grappling with intricate digital architecture. Now, Datadog is harnessing its expertise to venture into the realm of artificial intelligence (AI).
Image source: Getty Images.
Pioneering Cloud Network Monitoring and AI Integration
As the majority of U.S. consumers veer toward online shopping — a staggering 70%, to be precise — gauging customer satisfaction in the digital arena presents an arduous task. In a physical store, attendants can promptly address customer concerns; the online world, however, offers no such luxury. Issues such as slow-loading web pages or glitches can repel customers without the merchant’s awareness.
Enter Datadog. With its vigilant monitoring of digital infrastructure, it detects and flags issues in real time, enabling swift remedial action before customers bear the brunt. With a clientele spanning 27,300 businesses across varied industries such as financial services, manufacturing, media, and gaming, Datadog has established itself as a linchpin of digital operational prowess.
Expanding its repertoire, the company has forayed into AI. Last year, it unveiled Bits AI, a revolutionary chatbot-style aide seamlessly integrated into the Datadog platform. Bits AI expeditiously diagnoses issues, furnishing staff with incident summaries and circumventing hours of laborious manual investigation. Moreover, it responds to natural language prompts, empowering non-technical staff to extract invaluable insights from operational and customer data. Datadog also launched a new monitoring tool for generative AI developers, fortifying its AI footprint across diverse domains.
Record Revenue and Profit Surge in 2023
In the fourth quarter of 2023, Datadog surged to a revenue of $589.6 million, marking a 26% upsurge from the corresponding quarter in 2022. The cumulative revenue for 2023 scaled new heights, ascending by 27% to a record $2.1 billion. Notably, the company’s prime customers powered much of this growth, with 3,190 clients annually funneling a minimum of $100,000 – reflecting a 14.7% uptick from the previous year. Furthermore, 396 clients annually dispensed at least $1 million, indicating a substantial 24.9% surge.
Moreover, AI is gradually permeating Datadog’s financial landscape. Businesses engaged in developing generative AI now account for 3% of the company’s revenue, a marked increase from 2.5% just three months earlier. With products like generative AI application monitoring and Bits AI launched a mere year ago, the rapid adoption bodes well for Datadog’s AI segment to burgeon into a significant revenue stream.
Furthermore, Datadog, known for robust investments in growth initiatives, eked out a modest $48.5 million in net income (profit) in 2023, signifying a positive shift from a $50.1 million net loss in 2022. This move towards profitability in a high-cost capital environment bodes well for investors and reinforces Datadog’s fiscal prudence.
Compelling Reasons to Invest in Datadog Now
Datadog’s 2024 forecast portends yet another groundbreaking year, with the projection of over $2.5 billion in revenue. While this may indicate a marginal deceleration in growth at 21%, the company anticipates a marginal increase in operating income. This signals Datadog’s approach of prioritizing profitability over accelerated growth, ensuring a sustainable long-term trajectory.
The prevailing sentiment on Wall Street is overwhelmingly bullish on Datadog. 42 analysts tracked by The Wall Street Journal exude unwavering confidence, with 23 granting it the highest buy rating, five in the bullish camp, and 13 maintaining a neutral hold stance. With just one analyst casting a bearish vote against it, Datadog’s recent 15% uptick in 2024 has still left the stock trading at 31% below its all-time high, during the 2021 tech fervor. The company has since undergone an impressive growth spurt and its foray into the AI domain has considerably expanded its market opportunity.
Against a backdrop where generative AI could potentially inject trillions into the global economy in the next decade, a strategic investment in Datadog today might be a prescient move that yields substantial gains in the next 10 years.
Where to invest $1,000 right now
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for two decades, Motley Fool Stock Advisor, has more than tripled the market.*
They just revealed what they believe are the 10 best stocks for investors to buy right now… and Datadog made the list — but there are 9 other stocks you may be overlooking.
See the 10 stocks
*Stock Advisor returns as of February 12, 2024
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Datadog. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
