Datadog (NASDAQ:DDOG) Beats Q4 Sales Targets But Stock Drops On Weak Outlook

Kayode Omotosho /
2023/02/16 7:05 am EST

Cloud monitoring software company Datadog (NASDAQ:DDOG) reported Q4 FY2022 results beating Wall St's expectations, with revenue up 43.9% year on year to $469.4 million. However, guidance for the next quarter was less impressive, coming in at $468 million at the midpoint, being 2.98% below analyst estimates. Datadog made a GAAP loss of $29 million, down on its profit of $7.17 million, in the same quarter last year.

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Datadog (DDOG) Q4 FY2022 Highlights:

  • Revenue: $469.4 million vs analyst estimates of $448.1 million (4.76% beat)
  • EPS (non-GAAP): $0.26 vs analyst estimates of $0.19 (38.4% beat)
  • Revenue guidance for Q1 2023 is $468 million at the midpoint, below analyst estimates of $482.4 million
  • Management's revenue guidance for upcoming financial year 2023 is $2.08 billion at the midpoint, missing analyst estimates by 4.78% and predicting 24.2% growth (vs 65.5% in FY2022)
  • Free cash flow of $96.4 million, up 43.6% from previous quarter
  • Customers: 2,780 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 79.4%, in line with same quarter last year

"We are pleased with our fourth quarter performance, as we delivered more value to more customers across our broadening platform, while driving strong profitability and cash generation," 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.

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.

Sales Growth

As you can see below, Datadog's revenue growth has been incredible over the last two years, growing from quarterly revenue of $177.5 million in Q4 FY2020, to $469.4 million.

Datadog Total Revenue

And unsurprisingly, this was another great quarter for Datadog with revenue up 43.9% year on year. On top of that, revenue increased $32.9 million quarter on quarter, a solid improvement on the $30.4 million increase in Q3 2022, and even a sign of slight acceleration of growth.

Guidance for the next quarter indicates Datadog is expecting revenue to grow 28.9% year on year to $468 million, slowing down from the 82.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $2.08 billion at the midpoint, growing 24.2% compared to 62.8% increase in FY2022.

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Large Customers Growth

You can see below that at the end of the quarter Datadog reported 2,780 enterprise customers paying more than $100,000 annually, an increase of 180 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 Q4 Results

With a market capitalization of $28.2 billion, more than $1.88 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth Datadog delivered this quarter. On the other hand, it was unfortunate to see that Datadog's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from Datadog. The company is down 6.14% in the pre-market and currently trades at $83.31 per share.

Datadog may have had a tough quarter, but does that actually create an opportunity to 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.

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