Guggenheim analysts started shares of Datadog, Inc. (NASDAQ:DDOG) with a Neutral rating in a note this week.
The analysts stated their firm has admired Datadog's success over the years, "leveraging a product-led growth strategy which has enabled it to scale rapidly in a highly fragmented market."
However, they added that, like other consumption-based businesses, Datadog has not been able to escape macro-related pressures culminating in "cloud optimization."
"Unfortunately, we do not think the dog days of summer are over. In fact, we see evidence which suggests optimization will continue through 2024," wrote the analysts. "While we do believe 2H23 guidance is de-risked, even in a plausible case where Datadog exits 2023 growing 23%, we see limited potential upside to 2024 Street estimates."
Despite the negatives, Guggenheim does believe it is a matter of when, not if, Datadog benefits from a firmer macro. In addition, they see the recent growth deceleration as mainly due to macro-related factors, although they acknowledge that cost concerns may be playing a role as well.
Furthermore, while the firm recognizes the potential for Datadog to benefit from enterprise AI strategies, they are hesitant to underwrite a significant rebound in spending as AI roadmaps are developing and the timing of implementation is "still a question."