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In this edition, you’ll read an in-depth analysis of a great stock we’ve been watching: 👇

Stock Deep Dive: Datadog (DDOG-US, $38.5B MCAP)

The amount of data growth is going to be exponential thanks to AI.

There’s this famous saying in analytics that goes, “garbage in, garbage out”

This means that the conclusions that analytical models make are only as good as their input nodes. By controlling and cleaning data on the input side, companies are able to glean much more actionable insights from this information.

While ingestion of data is of vital importance, so is continually monitoring the interaction between all the different applications running in any organization.

The average large company has 254 applications¹ . This had led to the concept of SaaS sprawl where there are so many programs talking to each other.

This week’s pick brings order to this chaos when so many different digital components talk to each other.

• Why now? 👉 Massive Multiple Compression & Lower Rates Coming

• Overview 👉 What Does Datadog Do?

• Product Suite 👉 Application Function

• How Do They Make Money? 👉 Subscription, Usage, Tiers

• By The Numbers 👉 Key Metrics

• Risks 👉 Potential Pitfalls

Why now? 👉 Massive Multiple Compression & Lower Rates Coming

Software was on fire in the post-COVID period.

Rates were low and offices were closed as entire workloads were brought online.

This pulled forward a lot of growth rates as investors crowded around companies that focused on empowering workers in their pajamas.

In 2020, investors piled in and multiples took off. Especially in the higher-growth cohort:

Then reality set in. In hindsight, it never made sense for these companies experiencing a drastic one-time boom to trade at the multiples they did, and now we’ve come back to earth.

Over this timeframe, software companies went from all-in on growth, back to focusing on operational efficiencies and focusing on cash flow. This same set of companies have now become MUCH cheaper on a free cash flow basis.

In addition to drastic multiple compression, we now also have another dynamic evolving. Rate cut expectations are ramping up as there are more and more signs that the US economy is weakening.

Using history as a guide, interest rates going down are usually a GREAT thing for software companies as there is a negative correlation:

Compressed multiples after companies have gotten fit + rates coming lower = software rally incoming.

So let’s dive in to a large and established player in this ecosystem - Datadog

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