Cloud computing is the revolutionary technology that provides businesses with a cost-effective way to shift their operations online. But managing digital infrastructure can be tricky, because websites and online services need to be available 24/7 for customers and employees. That's where Datadog (DDOG 5.07%) comes in -- it developed a cloud monitoring platform which helps enterprises minimize downtime and, therefore, lost income. A retailer, for instance, might use Datadog to monitor its website infrastruct ...

Financial Performance & Growth - Datadog's TTM revenue reached $2.83 billion, demonstrating a year-over-year growth of 26%[50] - The company's TTM non-GAAP operating margin stands at 24%, with a TTM free cash flow margin of 29%[50] - Datadog forecasts Q2 2025 revenue between $787 million and $791 million, and full-year 2025 revenue between $3.215 billion and $3.235 billion[68] - The company's long-term operating margin goal is 25%+ [70] Customer Base & Platform Adoption - Datadog serves approximately 30,500 total customers[50] - The company has around 3,770 customers with ARR exceeding $100,000[50] - 83% of Datadog's customers are using two or more products, 51% are using four or more products, 28% are using six or more products, and 13% are using eight or more products[50] Market Opportunity & Recognition - The cloud market is estimated to be a ~$600 billion market today, growing at a 20% CAGR through 2028[27] - The observability market is approximately $53 billion today, with an anticipated growth rate of 11% CAGR through 2028[29] - The cloud security market is currently valued at $26 billion, projecting a growth of 16% CAGR through 2028[31]

Core Viewpoint - Datadog is experiencing a frustrating stock performance despite strong growth momentum in the cloud-computing sector, particularly in observability and monitoring solutions driven by AI demand [1][2]. Group 1: AI-Powered Growth Opportunity - Datadog serves as a central data hub, providing real-time visibility across technology stacks, integrating data from over 900 software applications to enhance efficiency [4]. - The rise of data-intensive AI workflows is a significant growth driver, with Datadog actively integrating AI tools, including its Bits AI generative assistant, to enhance automation and intelligent analysis [5]. - The public cloud services market is valued at $600 billion and is expected to nearly double by 2028, with a 20% compound annual growth rate (CAGR), presenting substantial opportunities for Datadog [6]. Group 2: Robust Operating Tailwinds - In the first quarter, Datadog's revenue grew by 25% year over year to $762 million, exceeding Wall Street's expectations of $741.5 million, with adjusted earnings per share (EPS) of $0.46 also surpassing estimates [7]. - The company has around 30,500 customers, with 3,770 generating over $100,000 in annual recurring revenue (ARR), and a notable 110% dollar-based net retention rate indicates increased customer spending [8]. - Demand for AI solutions is strong, with the number of customers using its large language model (LLM) Observability product more than doubling in six months, supported by strategic acquisitions like Metaplane and Eppo [9]. Group 3: Free-Cash-Flow Momentum - For the full year 2025, Datadog targets revenue between $3.215 billion and $3.235 billion, reflecting a growth rate of 20% to 21% from the prior year, with EPS estimates of $1.67 to $1.71 indicating strong profitability [10]. - Free cash flow reached $833 million over the past year, surging 39% from year-end 2023, supporting the stock's premium valuation [10]. Group 4: Competitive Positioning - Datadog shares trade at a forward price-to-earnings (P/E) ratio of 64, which is high compared to the broader market but attractive relative to other high-growth software infrastructure peers [11]. - Compared to peers like CrowdStrike and Cloudflare, which have a forward P/E above 100, Datadog's unique blend of observability and cybersecurity capabilities offers broader use cases [12]. Final Thoughts - Datadog's AI-driven growth aligns with high-level themes in technology and cloud computing, making it a compelling addition to diversified portfolios [14].

Core Insights - Datadog, Inc. has demonstrated strong operational performance with first-quarter 2025 financial results that exceeded forecasts, leading to an upward revision of its full-year guidance [1][6][15] Financial Performance - Total revenue for Q1 2025 reached $761.55 million, representing a 24.6% year-over-year increase and surpassing the consensus estimate of $741.73 million [7] - Non-GAAP net income per share was $0.46, exceeding the consensus of $0.42, while GAAP net income per diluted share was $0.07 [8] - Non-GAAP operating income was $167 million, resulting in a 22% non-GAAP operating margin [8] - Operating cash flow was $272 million, with free cash flow of $244 million, indicating a healthy 32% free cash flow margin [10] Customer Growth - There was a 13% year-over-year increase in customers with an Annualized Recurring Revenue (ARR) of $100,000 or more, totaling approximately 3,770 customers, which generate about 88% of the company's total ARR [9] Guidance and Future Outlook - Datadog expects Q2 2025 revenue between $787 million and $791 million, and non-GAAP EPS between $0.40 and $0.42 [11] - Full-year revenue guidance has been raised to between $3.215 billion and $3.235 billion, with non-GAAP EPS projected between $1.67 and $1.71 [11] Strategic Initiatives - The company is focusing on ongoing platform innovation and increasing demand for observability solutions tailored to AI workloads, with "Born-in-AI" companies contributing 8.5% of Q1 revenue [12] - Recent acquisitions of Eppo and Metaplane are aimed at enhancing product analytics and data quality, expanding the addressable market [12] Valuation Metrics - As of May 7, 2025, Datadog's stock price was around $105.31, with a market capitalization of approximately $36.10 billion [13] - The trailing P/E ratio is high, in the range of 206-207, while the forward P/E ratio is about 62.3x based on anticipated earnings growth [13][14] - The price-to-sales ratio (P/S) is approximately 13.47 using fiscal year 2024 revenue, and around 11.2x using the midpoint of fiscal year 2025 revenue guidance [14] Market Position - Datadog is well-positioned to capitalize on trends such as cloud migration and increasing infrastructure complexity, with a strong outlook for growth in observability solutions [15]

Core Insights - Datadog reported a non-GAAP EPS of 46 cents for Q1 2025, a 4.5% increase year-over-year, exceeding the Zacks Consensus Estimate by 9.52% [1] - The company's net revenues reached $761.6 million, reflecting a year-over-year growth of 24.6% and surpassing the consensus estimate by 3% [1] Customer Metrics - Datadog ended Q1 2025 with 30,500 customers, an increase from approximately 28,000 in the same period last year [2] - The number of customers with an annual run rate (ARR) of $100,000 or more rose to 3,770, up from about 3,340 year-over-year, contributing to 88% of total ARR [2] Product Usage - As of the end of Q1, 83% of customers utilized two or more products, up from 82% in the previous year [3] - 51% of customers used four or more products, an increase from 47% year-over-year [3] - The trailing 12-month net revenue retention percentage remained in the high 0.10% range, consistent with the prior quarter [3] Financial Performance - Datadog's adjusted gross margin contracted by 290 basis points year-over-year to 80.3% [4] - Research and development expenses increased by 32.2% year-over-year to $225.7 million, representing 29.6% of revenues, up 170 basis points [4] - Sales and marketing expenses rose 24.8% year-over-year to $178.4 million, maintaining a flat percentage of revenues at 23.4% [4] - General and administrative expenses increased by 33.7% year-over-year to $41 million, accounting for 5.4% of revenues, up 40 basis points [5] - Non-GAAP operating income was reported at $166.5 million, compared to $164.5 million in the prior year [5] Balance Sheet and Cash Flow - As of March 31, 2025, Datadog had cash and equivalents totaling $4.4 billion, up from $4.2 billion at the end of 2024 [6] - Operating cash flow for the quarter was $272 million, an increase from $265 million in the previous quarter [6] - Free cash flow was reported at $244 million, compared to $241 million in the prior quarter [6] Guidance - For Q2 2025, Datadog expects revenues between $787 million and $791 million, with non-GAAP EPS projected in the range of 40-42 cents [7] - For the full year 2025, the company anticipates revenues between $3.215 billion and $3.235 billion, with non-GAAP EPS expected between $1.67 and $1.71 [8]

Financial Performance - Revenue for the three months ended March 31, 2025, was $761.6 million, representing a year-over-year growth of 25% compared to $611.3 million in the same period of 2024[110]. - The company incurred a net income of $24.6 million for the three months ended March 31, 2025, down from $42.6 million in the same period of 2024[110]. - Revenue for the three months ended March 31, 2025, was $761.6 million, an increase of $150.3 million or 25% compared to $611.3 million for the same period in 2024[138]. - Cash provided by operating activities for the three months ended March 31, 2025, was $271.5 million, an increase of $59.3 million compared to $212.3 million for the same period in 2024[151]. - Free cash flow for the three months ended March 31, 2025 was $244.4 million, up from $186.7 million in the same period of 2024, reflecting a 30.8% increase[156]. - Net cash provided by operating activities rose to $271.5 million in Q1 2025, compared to $212.3 million in Q1 2024, indicating a 27.8% increase[156]. Customer Metrics - The company had approximately 30,500 customers as of March 31, 2025, an increase from approximately 28,000 customers as of March 31, 2024[113]. - Approximately 3,770 customers had an annual run-rate revenue (ARR) of $100,000 or more, representing 88% of total ARR, up from 87% a year earlier[115]. - The trailing 12-month dollar-based net retention rate was in the high-110%'s as of March 31, 2025, an increase from mid-110%'s a year earlier[116]. - Approximately 83% of customers were using more than one product as of March 31, 2025, up from approximately 82% a year earlier[118]. Expenses and Costs - Cost of revenue increased by $47.5 million, or 43%, to $157.6 million for the three months ended March 31, 2025, primarily due to a $42.8 million increase in third-party cloud infrastructure hosting and software costs[140]. - Gross margin decreased to 79% for the three months ended March 31, 2025, down from 82% in the same period of 2024, primarily due to increased spending with third-party cloud infrastructure providers[141]. - Research and development expenses rose by $71.1 million, or 26%, to $341.1 million, representing 45% of revenue for the three months ended March 31, 2025[142]. - Sales and marketing expenses increased by $40.4 million, or 23%, to $214.3 million, maintaining 28% of revenue for the three months ended March 31, 2025[143]. - General and administrative expenses increased by $15.7 million, or 35%, to $61.0 million, representing 8% of revenue for the three months ended March 31, 2025[144]. Cash and Investments - As of March 31, 2025, the company had $1,079.9 million in cash and cash equivalents and $3.4 billion in marketable securities[110]. - As of March 31, 2025, the company had cash and cash equivalents of $1.1 billion and marketable securities of $3.4 billion, which are expected to support cash requirements for the next 12 months[146]. - The company issued $1.0 billion aggregate principal amount of the 2029 Notes in December 2024, with net proceeds of approximately $979.1 million after deducting costs[148]. - Net cash used in investing activities increased by $182.2 million to $333.0 million in marketable securities purchases for the three months ended March 31, 2025[153]. - Capital expenditures decreased from $14.2 million in Q1 2024 to $8.7 million in Q1 2025, a reduction of 38.5%[156]. Strategic Plans - The company plans to continue investing in sales and marketing to drive new customer acquisition and brand awareness[113]. - The company intends to evaluate strategic acquisitions and investments to drive product and market expansion[119]. Accounting and Risk Management - The company reported no material changes to critical accounting policies from the previous annual report[158]. - A hypothetical 10% change in interest rates would not have a material impact on the company's financial statements as of March 31, 2025[162]. - The company has not entered into any hedging arrangements for foreign currency risk, which may affect future results due to fluctuations in exchange rates[164]. - The fair value of the 2025 Notes is influenced by interest rate and market risks, but does not impact the company's financial position or cash flows[163]. - The estimated useful life of capitalized software development costs was increased from two to three years effective from fiscal year 2025[159].

Core Insights - Datadog reported quarterly earnings of $0.46 per share, exceeding the Zacks Consensus Estimate of $0.42 per share, and showing a slight increase from $0.44 per share a year ago, resulting in an earnings surprise of 9.52% [1] - The company achieved revenues of $761.55 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 3% and reflecting a year-over-year increase from $611.25 million [2] - Datadog has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The future performance of Datadog's stock will largely depend on management's commentary during the earnings call and the sustainability of the stock's price movement based on recent earnings and future expectations [3][4] - Current consensus EPS estimate for the upcoming quarter is $0.40 on revenues of $767.64 million, while for the current fiscal year, the estimate is $1.68 on revenues of $3.19 billion [7] Industry Context - The Internet - Software industry, to which Datadog belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $762 million, representing a 25% year-over-year increase and exceeding the high end of guidance [7][28] - Free cash flow was $244 million, with a free cash flow margin of 32% [9][37] - Gross profit was $612 million, with a gross margin of 80.3%, down from 81.7% in the previous quarter and 83.3% year-over-year [33][34] - Operating income was $167 million, resulting in a 22% operating margin, compared to 24% last quarter and 27% in the year-ago quarter [36] Business Line Data and Key Metrics Changes - 80% of customers were using two or more products, up from 82% a year ago, and 51% were using four or more products, up from 47% [9] - FlexLogs exceeded $50 million in ARR, achieving this milestone in six quarters, the fastest ramp seen [10] - Database monitoring product is approaching $50 million in ARR, growing 60% year-over-year [11] Market Data and Key Metrics Changes - The number of AI native customers represented about 8.5% of Q1 ARR, up from 6% last quarter and 3.5% a year ago [28] - Dollar bookings for new logos increased over 70% year-over-year, with 11 deals signed with a TCV of $10 million or more, up from one in the year-ago quarter [12][13] Company Strategy and Development Direction - The company continues to focus on digital transformation and cloud migration as long-term growth drivers [27] - Investments are being made in AI observability and analysis, with over 4,000 customers using Datadog AI integrations, doubling year-over-year [13][14] - Recent acquisitions include EPO and MetaPlan, aimed at enhancing product offerings in feature management and data observability [18][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledges various economic challenges but maintains a positive outlook on long-term market opportunities [27] - The company is well-positioned to assist clients with cloud migration and digital transformation [42] - Management expects revenue for Q2 2025 to be in the range of $787 million to $791 million, representing 22% to 23% year-over-year growth [38] Other Important Information - The company ended the quarter with $4.4 billion in cash, cash equivalents, and marketable securities [37] - The trailing twelve-month net revenue retention percentage was in the high 110s, with gross retention stable in the mid to high 90s [30] Q&A Session Summary Question: Comment on the opportunity with AI-generated code - Management sees a shift in value from writing code to observing and understanding it in production environments, emphasizing the importance of validation and performance [45][48] Question: What attributed to the strong booking stats? - Strong pipeline and increased investments in go-to-market strategies contributed to the booking strength, with no significant impact from economic uncertainties observed [49][52] Question: Trend lines on cloud migration - Cloud migration remains steady, with consistent customer desire to move to the cloud as a prerequisite for adopting AI [58][59] Question: Expansion opportunities in data observability - The company views data observability as a significant opportunity, especially with the integration of MetaPlan to enhance data quality and pipeline management [60][64] Question: Guidance and gross margin changes - The guidance reflects recent trends, with a focus on maintaining conservatism while acknowledging higher cloud costs and the need for optimization [68][73]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $762 million, representing a 25% year-over-year increase and exceeding the high end of guidance [6][27] - The company generated free cash flow of $244 million, with a free cash flow margin of 32% [7][36] - Gross profit was $612 million, with a gross margin of 80.3%, down from 81.7% in the previous quarter and 83.3% year-over-year [33] Business Line Data and Key Metrics Changes - The number of customers increased to approximately 30,500, up from about 28,000 a year ago [6] - 3,770 customers had an ARR of $100,000 or more, up from 3,340 a year ago, contributing to 88% of total ARR [6][27] - FlexLogs product exceeded $50 million in ARR, achieving this milestone in six quarters, marking the fastest ramp [8] - Database monitoring product is approaching $50 million in ARR, growing 60% year-over-year [9] Market Data and Key Metrics Changes - AI native customers represented about 8.5% of Q1 ARR, up from 6% last quarter and 3.5% a year ago [27] - Dollar bookings for new logos increased over 70% year-over-year, with 11 deals signed with a TCV of $10 million or more, up from one in the year-ago quarter [11][12] Company Strategy and Development Direction - The company continues to focus on digital transformation and cloud migration as long-term growth drivers [26] - Investments are being made in AI observability and analysis, with over 4,000 customers using Datadog AI integrations, doubling year-over-year [12][13] - Recent acquisitions include EPO and MetaPlan, aimed at enhancing product offerings in feature management and data observability [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the impact of global economic conditions but remains optimistic about long-term market opportunities [26] - The company expects revenue for Q2 2025 to be in the range of $787 million to $791 million, representing 22% to 23% year-over-year growth [37] - For fiscal year 2025, total revenue is expected to be in the range of $3.215 billion to $3.235 billion, indicating a growth rate of 20% to 21% [38] Other Important Information - The company plans to host its DASH user conference in June, which is expected to cost about $13 million [37] - The remaining principal of the $20.25 convertible notes will mature in June, with expectations to redeem mainly in cash [40] Q&A Session Summary Question: Comment on the opportunity for Datadog with AI writing code - Management sees a shift in value from writing code to observing and understanding it in production environments, emphasizing the need for monitoring [43][46] Question: What attributes the strong booking strength despite economic uncertainty? - The strong pipeline and increased investments in go-to-market strategies contributed to the booking strength, with healthy sales cycles [47][49] Question: What are the trend lines on cloud migration? - Cloud migration trends remain steady, with consistent customer desire to move to the cloud as a prerequisite for adopting AI [54][56] Question: Discuss the expansion opportunities in data observability - Management views data observability as a significant opportunity, especially with the acquisition of MetaPlan, which enhances their capabilities [57][59] Question: Insights on AI native cohort and renewal trends - The AI native cohort is growing, but there is a concentration risk with larger customers, which management is monitoring closely [81][84] Question: How is productivity tracking with increased investments in sales and marketing? - Productivity from new sales reps is tracking well, with similar productivity levels compared to existing reps [92][94]

Exhibit 99.1 Datadog Announces First Quarter 2025 Financial Results May 6, 2025 First quarter revenue grew 25% year-over-year to $762 million Robust growth of larger customers, with about 3,770 $100k+ ARR customers, up from about 3,340 a year ago Announced 2025 DASH user conference, June 10-11, in New York City NEW YORK-- Datadog, Inc. (NASDAQ:DDOG), the monitoring and security platform for cloud applications, today announced financial results for its first quarter ended March 31, 2025. "Datadog executed so ...