No. of Recommendations: 1
Thank you for your ideas, and it is understandable. I apologize that my response below is rather general, as I have not studied Datadog's competitive/inherent market position well all, but it could be useful.
I also expect that acquisition will occur at a healthy premium to the quoted price. M* and CFRA use standard valuation methods based on projected future revenues and margins to produce (12-month) target share prices in the $120 to $157 range--a big premium to the price I paid (~$71) but less than what others paid within the past year.
You are right that these types of firms usually merge or are bought our, so the holding name doesn't always continue, even though the customers and products can.
The multiple that the private purchase is made with is nearly always a reflection of such questions relating to the durability of their customer relations. Sometimes you have an enthusiastic buyer that purchase a flop (such as Murdoch purchasing MySpace) but normally the high purchase multiple is only because the buyer thinks they are getting in future earnings more than they are paying today.
One should have real reasons and conviction that the underlying business is unusually durable.
The 'price targets' by analysts are far more a reflection of the multiple selected. If we project the sales extremely, even with foresight, accurately, even then one private owner might assign a 5x multiple and another 50x.
- Manlobbi
