Datadog (NASDAQ:DDOG) Q2: Beats On Revenue But Stock Drops

Radek Strnad /
2022/08/04 7:06 am EDT
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Cloud monitoring software company Datadog (NASDAQ:DDOG) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 73.8% year on year to $406.1 million. On the other hand, guidance for the full year slightly missed analyst expectations with revenues guided to $1.62 billion at the midpoint, or 0.28% below analyst estimates. Datadog made a GAAP loss of $4.87 million, improving on its loss of $9.36 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) Q2 FY2022 Highlights:

  • Revenue: $406.1 million vs analyst estimates of $381.2 million (6.51% beat)
  • EPS (non-GAAP): $0.24 vs analyst estimates of $0.15 ($0.09 beat)
  • Revenue guidance for Q3 2022 is $412 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $1.62 billion at the midpoint
  • Free cash flow of $60.1 million, down 53.6% from previous quarter
  • Customers: 2,420 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 79.8%, up from 75.5% same quarter last year

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 $233.5 million, to $406.1 million.

Datadog Total Revenue

This was another standout quarter with the revenue up a splendid 73.8% year on year. On top of that, revenue increased $43.1 million quarter on quarter, a solid improvement on the $36.8 million increase in Q1 2022, and happily, a slight acceleration of growth.

Guidance for the next quarter indicates Datadog is expecting revenue to grow 52.3% year on year to $412 million, slowing down from the 74.8% 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 41.2% 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 2,420 enterprise customers paying more than $100,000 annually, an increase of 170 on last quarter. That is a bit less contract wins than we saw in the last quarter but quite a bit still above what we have typically seen over the last year, suggesting sales momentum is coming off slightly after a stronger quarter.

Datadog customers paying more than $100,000 annually

Key Takeaways from Datadog's Q2 Results

Sporting a market capitalization of $35.4 billion, more than $1.7 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. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue guidance for the full year slightly missed expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 8.09% on the results and currently trades at $103.32 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.

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.