Here's our initial take on Datadog's (DDOG 1.84%) fourth-quarter financial report.Key MetricsMetricQ4 2023Q4 2024Changevs. ExpectationsTotal revenue$590 million$738 million+25%BeatAdjusted earnings per share$0.44$0.49+11%BeatCustomers > $100K ARR3,1903,610+13%n/aFree cash flow$201 million$241 million+20%n/aTrouble Ahead for Datadog?Things looked good for Datadog in the fourth quarter. Strong quarterly revenue gains helped the data-focused technology company finish 2024 with a 26% rise in annual sales, and a ...

Datadog exceeded earnings expectations with notable revenue growth and strong customer expansion in its Q4 2024 results.Datadog (DDOG 1.84%), a leading provider of observability and security platforms, announced its financial results for the fourth quarter of 2024 on February 13, 2025. The company outperformed expectations, with non-GAAP earnings per share (EPS) of $0.49 against estimates of $0.43, marking a 14% beat. Revenue climbed to $738 million, exceeding projections by $24 million and marking a 25.1% ...

Revenue Growth - Fourth quarter revenue grew 25% year-over-year to $738 million[5] - Fiscal year 2024 revenue was $2.68 billion, an increase of 26% year-over-year[5] - Revenue for Q4 2024 reached $737.7 million, a 25% increase from $589.6 million in Q4 2023[30] - For Q1 2025, revenue is expected to be between $737 million and $741 million[7] Customer Metrics - Datadog had 462 customers with $1 million+ ARR, up 17% from 396 a year ago[7] Profitability - GAAP net income per diluted share for Q4 2024 was $0.13, while non-GAAP net income per diluted share was $0.49[5] - Net income for Q4 2024 was $45.6 million, a decrease of 15.5% from $54.0 million in Q4 2023[30] - GAAP operating income for the year ended December 31, 2024, was $54.284 million, a significant recovery from a loss of $33.464 million in 2023[36] - Non-GAAP operating income for fiscal year 2025 is projected to be between $655 million and $675 million[11] Cash Flow - Operating cash flow for fiscal year 2024 was $871 million, with free cash flow of $775 million[2] - The company reported a net cash provided by operating activities of $265.2 million for Q4 2024, compared to $220.2 million in Q4 2023[34] - Free cash flow for the year ended December 31, 2024, was $775.103 million, an increase from $597.548 million in 2023, marking a 29.8% rise[39] - Free cash flow margin for Q4 2024 was 33%, slightly down from 34% in Q4 2023[39] Expenses - Research and development expenses for Q4 2024 were $316.3 million, a 25% increase from $253.3 million in Q4 2023[30] - Research and development expenses (GAAP) for Q4 2024 were $316.314 million, up from $253.250 million in Q4 2023, indicating a 25% increase[36] Assets and Liabilities - Cash and cash equivalents increased to $1.25 billion as of December 31, 2024, from $330.3 million in 2023[32] - Total current assets rose to $4.91 billion in 2024, compared to $3.18 billion in 2023, reflecting a 54.3% increase[32] - Total liabilities increased to $3.07 billion in 2024, up from $1.91 billion in 2023[32] Product Development and Innovation - The company plans to deliver more innovation in areas like Cloud Security and Product Analytics in 2025[2] - Datadog expanded its Database Monitoring product to include MongoDB databases[7] - The company plans to continue investing in new product development and market expansion strategies in the upcoming year[30] Gross Profit - Gross profit for Q4 2024 was $593.5 million, up 22.5% from $484.8 million in Q4 2023[30] - GAAP gross profit for Q4 2024 was $593.549 million, up from $484.820 million in Q4 2023, representing a 22.5% increase[36] - Non-GAAP gross profit for the year ended December 31, 2024, was $2.201053 billion, compared to $1.744434 billion in 2023, showing a 26.2% increase[36] Other Financial Metrics - Non-GAAP net income for Q4 2024 was $177.506 million, compared to $155.651 million in Q4 2023, reflecting a 14% growth[38] - The diluted net income per share after non-GAAP tax adjustments for the year ended December 31, 2024, was $1.82, up from $1.32 in 2023, reflecting a 38% increase[38]

Core Viewpoint - Datadog is expected to report strong revenue growth for Q4 2024, with anticipated revenues between $709 million and $713 million, reflecting a 20.69% increase year-over-year [1]. Revenue and Earnings Estimates - The Zacks Consensus Estimate for Q4 2024 revenue is $711.65 million [1]. - Non-GAAP earnings per share are projected to be between 42 and 44 cents, with the consensus estimate remaining at 43 cents, indicating a decline of 2.27% from the previous year [2]. Customer Metrics and Growth Drivers - Datadog had 3,490 customers with an annual run rate (ARR) of $100,000 or more, a 12% increase year-over-year, contributing to 88% of total ARR [6]. - The company’s multi-cloud and multi-vendor approach allows for comprehensive monitoring across different cloud infrastructures, enhancing customer retention and performance optimization [7]. Competitive Landscape - Datadog operates in a competitive market with rivals such as New Relic, Dynatrace, and Splunk, alongside tech giants like Microsoft and Amazon, which pose threats to its market share [8][9]. - Despite its strong platform capabilities, Datadog faces challenges from aggressive competition and potential market saturation [19][20]. Product Innovations - Recent product innovations, including Kubernetes Active Remediation and a modern Cloud SIEM solution, are expected to drive growth and attract new clients [11][12]. Stock Performance and Valuation - Datadog's stock has increased by 9.1% over the past year, underperforming the Zacks Computer and Technology sector's return of 20.7% [13]. - The company's forward 12-month P/S ratio is approximately 15.28, indicating a premium valuation compared to the broader Zacks Internet - Software industry [16]. Investment Considerations - While Datadog maintains a leadership position in cloud observability, concerns regarding profitability due to high sales and marketing investments and competitive pressures are noted [19][20]. - Existing shareholders are advised to maintain positions, while prospective investors may consider waiting for clearer insights post-Q4 earnings [21].

Group 1 - Datadog (NASDAQ: DDOG) is preparing to report earnings soon, and the stock appears attractive despite a recent rally that has impacted its valuation [2] - The focus of the analysis is on growth stocks, with an emphasis on identifying potential winners early in their growth cycles [3] - The investment strategy aims for efficient and profitable capital use, contrasting with rigid buy-and-hold strategies [3] Group 2 - The Timely Trader service offers features such as real-time alerts, a model portfolio, technical charts, sentiment indicators, and sector analysis to identify trading opportunities [2]

Core Insights - The cloud and AI markets are experiencing significant growth, with companies increasingly migrating data to public cloud platforms, leading to the development of more AI applications [2][3] - Microsoft, Datadog, and Oracle are identified as strong companies well-positioned to benefit from the growth in these markets [4] Microsoft - Microsoft has transformed Azure into the world's second-largest cloud infrastructure platform and integrated OpenAI's generative AI tools into its ecosystem [5] - In the latest quarter, Microsoft's total cloud revenue increased by 21% year over year, accounting for 59% of its total revenue, driven by Azure, Dynamics, and 365 productivity apps [6] - Analysts project Microsoft's revenue and EPS to grow at a CAGR of 14% from fiscal 2024 to fiscal 2027, supported by its cloud and AI businesses, Xbox division, and enterprise cloud services [7] Datadog - Datadog's platform aggregates diagnostic data across various computing platforms, simplifying problem diagnosis for IT professionals, enhanced by its new Bits AI generative AI chatbot [8] - The company turned profitable on a GAAP basis in 2023, with analysts expecting revenue and EPS to grow at a CAGR of 23% and 77%, respectively, from 2023 to 2026 [9] - Datadog's growth is driven by customers generating at least $100,000 in annual recurring revenue and a strong dollar-based net retention rate in the mid-110s [10] Oracle - Oracle has revitalized its growth by transitioning from on-premises software to cloud-based services and expanding into ERP, healthcare IT, and cloud infrastructure through acquisitions [12] - Analysts forecast Oracle's revenue and EPS to rise at a CAGR of 12% and 20%, respectively, from fiscal 2024 to fiscal 2027, fueled by demand for cloud-based database and ERP services [13] - Despite its cloud infrastructure being smaller than AWS and Azure, Oracle has secured major clients like Nvidia and Uber, and is expanding its offerings to support generative AI applications [14][15]

Company Performance - Datadog (DDOG) closed at $144.85, showing no change from the previous day, which is less than the S&P 500's daily gain of 0.36% [1] - Over the last month, Datadog's shares increased by 2.09%, outperforming the Computer and Technology sector's 0% but slightly lagging behind the S&P 500's gain of 2.11% [1] Upcoming Earnings - Datadog's earnings report is scheduled for February 13, 2025, with expected earnings of $0.43 per share, reflecting a year-over-year decline of 2.27% [2] - The consensus estimate for quarterly revenue is $711.65 million, which represents a 20.69% increase from the same period last year [2] Analyst Estimates - Recent changes to analyst estimates indicate positive sentiment regarding Datadog's business and profitability [3] - The Zacks Consensus EPS estimate has increased by 0.35% in the past month, and Datadog currently holds a Zacks Rank of 3 (Hold) [5] Valuation Metrics - Datadog's Forward P/E ratio is 74.39, significantly higher than the industry's average Forward P/E of 31.23 [6] - The company has a PEG ratio of 5, compared to the Internet - Software industry's average PEG ratio of 2.34 [6] Industry Context - The Internet - Software industry, part of the Computer and Technology sector, has a Zacks Industry Rank of 73, placing it in the top 30% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Datadog (DDOG) is expected to deliver a year-over-year decline in earnings on higher revenues when it reports results for the quarter ended December 2024. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The earnings report, which is expected to be released on February 13, 2025, might help the stock move higher if these key numbers are better than ex ...

Core Insights - Datadog's stock is experiencing a decline, with a 4.9% drop noted during trading, while major indices like the S&P 500 and Nasdaq also fell [1] - Stifel has downgraded Datadog's stock rating from buy to hold and reduced its one-year price target from $165 to $140, indicating a potential downside of approximately 3.5% [2] - Despite a strong revenue growth of 26% year-over-year, reaching $690 million in Q3, Stifel analysts predict a slowdown in momentum and new margin pressures for Datadog [3][4] Financial Performance and Outlook - Datadog is set to release its Q4 earnings on February 13, with sales guidance between $709 million and $713 million, which would represent a 20.5% year-over-year growth compared to $590 million in the same quarter last year [5][6] - The company is also guiding for non-GAAP earnings per diluted share between $0.42 and $0.44, compared to adjusted earnings of $0.44 per share in the previous year [6] Market Position and Valuation - Datadog is expected to benefit from ongoing AI-related demand for its cloud monitoring and security services, but it is trading at a high growth-dependent valuation of approximately 73 times expected annual earnings and 15 times expected sales [7] - Stifel believes Datadog's current price range reflects full valuation, with potential downside risks associated with future quarterly reports [4]

Core Viewpoint - Stifel analyst Brad Reback downgraded Datadog Inc from Buy to Hold, lowering the price forecast from $165 to $140, citing concerns over growth and margin challenges [1][6] Group 1: Contract and Revenue Outlook - Datadog has secured a one-year contract renewal with OpenAI, but OpenAI is optimizing its use of Datadog's services, which may limit growth potential [1][2] - The expected annualized value of the contract with OpenAI is $80 million, leading to only modest growth expectations despite increased usage [2] - There is a forecast for a potential significant quarter-over-quarter revenue decline in the first quarter as new contract terms take effect [2] Group 2: Growth and Margin Challenges - The optimization strategies by OpenAI, along with typical pricing pressures during contract renewals, suggest a deceleration in Datadog's AWS growth in the fourth quarter and throughout FY25 [3] - The company will need to significantly increase sales and marketing spending to support future revenue expansion, given modest headcount growth in FY23 [4] - Current projections for operating margins in FY25, expected to remain stable at around 25%, may be overly optimistic [4] Group 3: Risk/Reward Assessment - The risk/reward outlook for Datadog appears to lean towards the downside, with expectations that first-quarter guidance could be lower than current estimates [5] - Challenges to revenue growth and margins are anticipated throughout FY25, compounded by the stock's relatively high valuation and strong performance since the third-quarter report [6] - Datadog shares are currently trading lower by 5.73% at $143.18 [6]