On Monday, Loop Capital, a financial services firm, increased its price target for Datadog (NASDAQ:DDOG) to $200 from the previous $160, while maintaining a "Buy" rating on the stock. The adjustment comes as the analyst at Loop Capital projects a significant growth in the company's total addressable market (TAM) and future free cash flow (FCF).
The upgraded price target is based on a discounted cash flow analysis of Datadog's projected steady-state FCF for the fiscal year 2034 (FY34). Loop Capital estimates that, considering the company's expansion into the security market and growth in its product portfolio, Datadog's TAM could reach approximately $175 billion by 2034. This estimate assumes a compound annual growth rate (CAGR) of 17.5% over the next ten years.
The firm anticipates that Datadog could capture around 15% of this expanded market share, with an expected FCF margin of 30%. These projections lead to an FY34 FCF estimate of $7.9 billion. Applying a discount rate of 12.8%, which aligns with Datadog's current cost of equity, yields a net present value (NPV) of approximately $2.4 billion for the company's future cash flows.
By applying a 30 times multiple to the estimated NPV of $2.4 billion, Loop Capital arrives at an intrinsic value of about $200 per share for Datadog. The analyst's approach reflects confidence in the company's ability to grow its market presence and capitalize on its TAM expansion, particularly with its recent foray into the security sector.
Datadog's previous TAM, excluding security, was estimated at around $35 billion, which was already in line with industry estimates of the broader IT operations management (ITOM) market as referenced in Datadog's S-1 filing. The company's ongoing efforts to broaden its product offerings are seen as a key driver for the anticipated market opportunity growth.
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