Datadog (NASDAQ: DDOG) and PagerDuty (NYSE: PD) both play essential roles in aiding IT teams to oversee and regulate their software and hardware frameworks through cloud-based solutions. Datadog offers a real-time view of a company’s infrastructure, applications, and logs, thereby assisting IT professionals in spotting potential issues before they snowball. On the other hand, PagerDuty’s platform streamlines incident responses by managing on-call schedules, escalation protocols, and alerts.
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The Growth Trajectory of Datadog
Datadog experienced a remarkable compound annual growth rate (CAGR) of 67% in revenue from 2019 to 2022. During this period, the number of large customers, contributing at least $100,000 in annual recurring revenue (ARR), more than tripled.
However, in 2023, Datadog’s revenue growth slowed to 27% as the expansion of its large customer base moderated to 15%. Its net dollar-based retention rate, which consistently exceeded 130% in 2022, decreased to the mid-110s by the conclusion of 2023. This deceleration, attributed to industry-wide macroeconomic challenges affecting cloud spending, led Datadog to focus on cost management, resulting in profitability on a generally accepted accounting principles (GAAP) basis in 2023.
Although Datadog faces stiff competition from rivals like Cisco’s AppDynamics, Dynatrace, New Relic, and others, coupled with a maturing global observability tools market, analysts anticipate a CAGR of 25% in revenue and 85% in GAAP EPS growth from 2023 to 2026. Despite these promising figures, the stock valuation remains high at 78 times forward adjusted earnings and 17 times current sales, leading to a modest 9% gain in the stock price this year.
The Growth Trajectory of PagerDuty
From fiscal 2020 to fiscal 2023, PagerDuty witnessed a revenue CAGR of 30% and a customer growth rate of 20%. While the company remains unprofitable on a GAAP basis, its non-GAAP earnings turned positive in 2023.
In fiscal 2024, PagerDuty’s revenue growth decelerated to 16% with its customer base declining by 1%. The dollar-based retention rate dipped to 107% in Q4, down from 120% a year before, signaling challenges posed by harsh macroeconomic conditions within the cloud software sector and intense competition from industry giants like Cisco’s Splunk and ServiceNow.
Projections from fiscal 2024 to fiscal 2027 suggest a humble revenue CAGR of 12% for PagerDuty, with adjusted earnings expected to increase at a 20% CAGR. The company’s stock, trading at 33 times forward earnings and 5 times current sales, continues to hover below its IPO price. Nonetheless, insider activity indicates a bullish sentiment, and notable investors like Ark Invest’s Cathie Wood have increased their stakes in the company.
The Contender: Datadog Emerges Victorious
While Datadog’s stock price may exhibit stability until revenue growth and retention rates find equilibrium, its future appears notably brighter compared to PagerDuty. PagerDuty must bolster its competitive advantage and surge ahead of its larger counterparts before it can be considered a compelling turnaround prospect in the turbulent market environment.
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