Datadog (NASDAQ:DDOG) Reports Bullish Q3, Stock Soars

Kayode Omotosho /
2021/11/04 4:22 pm EDT
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Cloud monitoring software company Datadog (NASDAQ:DDOG) reported strong growth in the Q3 FY2021 earnings announcement, with revenue up 74.8% year on year to $270.4 million. Guidance for next quarter's revenue was surprisingly good, being $291 million at the midpoint, 10.4% above what analysts were expecting. Datadog made a GAAP loss of $5.48 million, improving on its loss of $15.1 million, in the same quarter last year.

Is now the time to buy Datadog? Access our full analysis of the earnings results here, it's free.

Datadog (DDOG) Q3 FY2021 Highlights:

  • Revenue: $270.4 million vs analyst estimates of $247.8 million (9.14% beat)
  • EPS (non-GAAP): $0.13 vs analyst estimates of $0.06 ($0.07 beat)
  • Revenue guidance for Q4 2021 is $291 million at the midpoint, above analyst estimates of $263.5 million
  • Free cash flow of $57 million, up 34.9% from previous quarter
  • Customers: 1,800 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 76.5%, down from 78% same quarter last year

"We are pleased with our third quarter performance, with revenue growth accelerating to 75% year-over-year. We saw broad-based strength across customer segments and products," said Olivier Pomel, co-founder and CEO of Datadog.

Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ:DDOG) is a software as a service platform that makes it easier to monitor cloud infrastructure and applications.

As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical, and ever more complex. To solve the challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with visibility to troubleshoot the issues in real time.

Cloud infrastructure monitoring is becoming a competitive space and Datadog is competing with offerings from New Relic (NYSE:NEWR), Elastic (NYSE:ESTC), Splunk (NASDAQ:SPLK), monitoring tools made by the cloud providers themselves and up and coming startups like Better Stack.

Sales Growth

As you can see below, Datadog's revenue growth has been incredible over the last year, growing from quarterly revenue of $154.6 million, to $270.4 million.

Datadog Total Revenue

This was another standout quarter with the revenue up a splendid 74.8% year on year. On top of that, revenue increased $36.9 million quarter on quarter, a solid improvement on the $35 million increase in Q2 2021, and happily, a slight re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 37.5% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Datadog. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Datadog reported 1,800 enterprise customers paying more than $100,000 annually, an increase of 190 on last quarter. That's in line with the number of contracts wins in the last quarter and quite a bit again above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

Datadog customers paying more than $100,000 annually

Key Takeaways from Datadog's Q3 Results

Sporting a market capitalization of $50.4 billion, more than $1.46 billion in cash and with positive free cash flow over the last twelve months, we're confident that Datadog has the resources it needs to pursue a high growth business strategy.

We were once again impressed by the exceptional revenue growth Datadog delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 9.61% on the results and currently trades at $183 per share.

Datadog may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.