Datadog Considers Acquiring Gitlab, But Barclays Says It Goes Against Strategy

Datadog (NASDAQ:DDOG) is reportedly considering acquiring GitLab (NASDAQ:GTLB), but analysts at Barclays say such a move goes against Datadog’s strategy of “small incremental acquisitions” and would move the company away from its “core observational market.”

GitLab and Datadog moved in opposite directions on Wednesday as GitLab increased by 9.3% while Datadog delved into down 7.3%.

Barclays sees the fall in Datadog shares as a buying opportunity.

“If DDOG were to come after GTLB, such a transaction would likely represent about a quarter of DDOG’s market capitalization,” Barclays analysts Raimo Lenschow and Ryan MacWilliams said in a note. “The company does not have enough cash to fund the transaction and would therefore need to fund the acquisition through debt or equity financing. While both options would be available to the company, we do not see either as ideal in the current climate.”

Barclays also notes that Datadog has had success in the core observability space and is making good inroads into the security market. They suggest that acquiring GitLab could draw resources away from those efforts.

The acquisition could also make Datadog a more direct competitor to Microsoft (MSFT), but it won’t provide Datadog with a clear advantage.

“This is probably the biggest and most credible resistance point for us for a transaction like this,” Lenschow added. “DDOG has worked well with MSFT to date to bring observability workloads to Azure, and management has seen over the last few quarters that Azure is the fastest-growing cloud. While a GTLB transaction wouldn’t completely derail that, we wouldn’t see it as a helpful factor going forward either.”

However, analysts at Needham believe that acquiring GitLab would be a positive move for Datadog.