Datadog Earnings: Early Signs of Demand Normalization Even as Macro Continues to Impact Results

We are lowering our fair value estimate for narrow-moat Datadog to $115 from $120 after the firm reported a mixed quarter with strong financial results more than offset by fiscal 2023 guidance below our expectations. While near-term macro headwinds continue to impact customer buying decisions, we were encouraged to hear management’s commentary on early signs of demand stabilization, based on buying behavior in July. It appears that the financial results, especially the weak sales guidance for the upcoming two quarters, left a lot lacking for investors with Datadog shares down double digits after the earnings report. We believe this selloff is overly punitive and that long-term investors have an opportunity to buy a high-quality SaaS name for a bargain.