Datadog (NASDAQ:DDOG) shares fell nearly 3% in premarket trading on Friday after investment firm BTIG downgraded the cloud software company, noting “weakening” checks.
Analyst Gray Powell lowered his rating on Datadog (DDOG) shares to neutral from buy, stating that customers optimizing cloud expenses with monitoring tools are likely to weigh on the company’s revenue growth going forward.
“… Infrastructure monitoring (almost 50% of revs) was viewed as one of the most at risk components in observability budgets as customer look to optimize their cloud environments and slow workload migrations,” Powell wrote in a note to clients. “In addition, we heard some concerns about DDOG’s customer base, which skews more towards small and medium sized organizations, being at risk in the current environment.”
Powell also noted that it will be harder for Datadog (DDOG) to win new customers this year and gain traction in large enterprise companies.
As such, Powell lowered 2023 and 2024 revenue estimates. He now forecasts revenue this year to be $2.092B, down from a previous view of $2.116B and next year to be $2.74B, down from a previous estimate of $2.842B.
Despite the downgrade, Powell noted that Datadog’s (DDOG) new products have been well received by the marketplace, including its cloud security posture management tools and cloud workload security offerings.
Late last month, J.P. Morgan listed Datadog (DDOG) among its top software picks for 2023.
Analysts are largely bullish on Datadog (DDOG). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates DDOG a HOLD.