Datadog (NASDAQ:DDOG) Q3 Sales Beat Estimates, Provides Optimistic Full Year Guidance

Radek Strnad /
2022/11/03 7:06 am EDT

Cloud monitoring software company Datadog (NASDAQ:DDOG) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 61.3% year on year to $436.5 million. The company expects that next quarter's revenue would be around $447 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Datadog made a GAAP loss of $25.9 million, down on its loss of $5.48 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) Q3 FY2022 Highlights:

  • Revenue: $436.5 million vs analyst estimates of $414.2 million (5.37% beat)
  • EPS (non-GAAP): $0.23 vs analyst estimates of $0.16 (43.7% beat)
  • Revenue guidance for Q4 2022 is $447 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $67.1 million, up 11.5% from previous quarter
  • Customers: 2,600 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 78.5%, up from 76.6% same quarter last year

"We are pleased with our third quarter results, with 61% year-over-year revenue growth, strong adoption of our products and robust opportunities with new 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 $154.6 million in Q3 FY2020, to $436.5 million.

Datadog Total Revenue

This was another standout quarter with the revenue up a splendid 61.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $30.3 million in Q3, compared to $43.1 million in Q2 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 37% year on year to $447 million, slowing down from the 83.7% 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 33.6% 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 2,600 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 Q3 Results

With a market capitalization of $23.5 billion, more than $1.76 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. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is up 4.87% on the results and currently trades at $78.11 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.