Datadog (NASDAQ:DDOG) Q1: Beats On Revenue But Contract Wins Slow Down

Adam Hejl /
2023/05/04 7:04 am EDT

Cloud monitoring software company Datadog (NASDAQ:DDOG) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 32.7% year on year to $481.7 million. The company expects that next quarter's revenue would be around $500 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Datadog made a GAAP loss of $24.1 million, down on its profit of $9.74 million, in the same quarter last year.

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Datadog (DDOG) Q1 FY2023 Highlights:

  • Revenue: $481.7 million vs analyst estimates of $469 million (2.71% beat)
  • EPS (non-GAAP): $0.28 vs analyst estimates of $0.24 (18.7% beat)
  • Revenue guidance for Q2 2023 is $500 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $2.09 billion at the midpoint
  • Free cash flow of $116.3 million, up 20.7% from previous quarter
  • Customers: 2,910 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 79.3%, in line with same quarter last year

"We are pleased with our execution in the first quarter, with 33% year-over-year revenue growth, continued customer growth, and increased multi-product adoption by our customers," 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 $198.5 million in Q1 FY2021, to $481.7 million.

Datadog Total Revenue

And unsurprisingly, this was another great quarter for Datadog with revenue up 32.7% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $12.3 million in Q1, compared to $32.9 million in Q4 2022. 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 23.1% year on year to $500 million, slowing down from the 73.9% 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 23.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 2,910 enterprise customers paying more than $100,000 annually, an increase of 130 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

Datadog customers paying more than $100,000 annually

Key Takeaways from Datadog's Q1 Results

Sporting a market capitalization of $21.2 billion, more than $2.02 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.

It was good to see Datadog outperform Wall St’s revenue expectations this quarter and deliver strong revenue growth on top of solid free cash flow. On the other hand, it was unfortunate to see the slowdown in new contract wins, which might be pointing to a deceleration in growth. Overall, this quarter's results were decent. The company is up 2.29% on the results and currently trades at $67.4 per share.

Should you invest in Datadog 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.