Datadog (NASDAQ:DDOG) Delivers Impressive Q2, Stock Soars

Kayode Omotosho /
2021/08/05 7:06 am EDT
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Cloud monitoring software company Datadog (NASDAQ:DDOG) reported strong growth in the Q2 FY2021 earnings announcement, with revenue up 66.8% year on year to $233.5 million. Datadog made a GAAP loss of $9.36 million, down on its profit of $284 thousand, 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) Q2 FY2021 Highlights:

  • Revenue: $233.5 million vs analyst estimates of $212.4 million (9.93% beat)
  • EPS (non-GAAP): $0.09 vs analyst estimates of $0.03 ($0.06 beat)
  • Revenue guidance for Q3 2021 is $247 million at the midpoint, above analyst estimates of $226 million
  • The company lifted revenue guidance for the full year, from $885 million to $941 million at the midpoint, a 6.32% increase
  • Free cash flow of $42.2 million, roughly flat from previous quarter
  • Customers: 1,610 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 75.5%, down from 76.4% previous quarter

"We had a strong second quarter, with revenue growth accelerating to 67% year-over-year and 18% quarter-over-quarter. 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.

Applications and infrastructure are getting more complex, and engineers need to know what is happening inside the cloud systems so they can spot problems before they happen and troubleshoot when they happen. That drives demand for monitoring services like Datadog, and as cloud adoption and standards for reliability of internet services grow, that demand is likely to also grow hand in hand.

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 exceptional over the last year, growing from quarterly revenue of $140 million, to $233.5 million.

Datadog Total Revenue

This was another standout quarter with the revenue up a splendid 66.8% year on year. On top of that, revenue increased $35 million quarter on quarter, a very strong improvement on the $21 million increase in Q1 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 36.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better. 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 1,610 enterprise customers paying more than $100,000 annually, an increase of 173 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 Q2 Results

With market capitalisation of $35.4 billion, more than $1.41 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 how strongly Datadog outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. On the other hand, there was a deterioration in gross margin. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 6.3% on the results and currently trades at $121.64 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 full report which you can read here, it's free.

One way how 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.