Datadog (NASDAQ:DDOG) Delivers Strong Q1 Numbers But Stock Drops 11.4%

Radek Strnad /
2022/05/05 7:11 am EDT

Cloud monitoring software company Datadog (NASDAQ:DDOG) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 82.8% year on year to $363 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $378 million at the midpoint, 4.52% above what analysts were expecting. Datadog made a GAAP profit of $9.73 million, improving on its loss of $13 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) Q1 FY2022 Highlights:

  • Revenue: $363 million vs analyst estimates of $337.8 million (7.46% beat)
  • EPS (non-GAAP): $0.24 vs analyst estimates of $0.11 ($0.13 beat)
  • Revenue guidance for Q2 2022 is $378 million at the midpoint, above analyst estimates of $361.6 million
  • The company lifted revenue guidance for the full year, from $1.52 billion to $1.61 billion at the midpoint, a 5.92% increase
  • Free cash flow of $129.9 million, up 21.7% from previous quarter
  • Customers: 2,250 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 79.4%, up from 76.4% same quarter last year

"We are pleased with our strong first quarter results, with 83% year-over-year revenue growth and strong profitability," 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 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 $198.5 million, to $363 million.

Datadog Total Revenue

This was another standout quarter with the revenue up a splendid 82.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $36.8 million in Q1, compared to $55.7 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Datadog is expecting revenue to grow 61.8% year on year to $378 million, in line with the 66.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 40.6% over the next twelve months.

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 150% since the IPO last 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 2,250 enterprise customers paying more than $100,000 annually, an increase of 240 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Datadog customers paying more than $100,000 annually

Key Takeaways from Datadog's Q1 Results

Sporting a market capitalization of $37.4 billion, more than $1.67 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 impressed by the exceptional revenue growth Datadog delivered this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. But the market was likely expecting more and the company is down 11.4% on the results and currently trades at $105.5 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.

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