Datadog in the Doghouse After Disappointing Forecast. Is It Time to Buy the Stock on the Dip?

Core Viewpoint - Datadog's stock has declined 19% following a weaker-than-expected 2025 outlook, but there may still be investment opportunities as the company transitions to a more proactive service model [1] Group 1: Financial Performance - Datadog's Q4 revenue increased by 25% to $738 million, with stable consumption trends year-over-year [4] - The company reported an adjusted EPS of $0.49, an 11% increase from $0.44 a year ago, and generated free cash flow of $241 million in the quarter [8] - For Q1, Datadog forecasts revenue between $737 million and $741 million, indicating approximately 21% growth [8] Group 2: Guidance and Margins - The 2025 revenue growth forecast of 18% to 19% fell short of analyst expectations, attributed to a conservative management approach in a tight enterprise software spending environment [2] - Operating margin guidance for 2025 is set at 21%, below the 25% anticipated by analysts, as the company plans to increase spending on sales and marketing [3] Group 3: Customer Metrics - Datadog ended the year with 30,000 customers, including 3,610 with annual recurring revenue (ARR) exceeding $100,000 and 462 customers spending over $1 million [5] - The net dollar-based retention rate was in the high-110% range, indicating strong spending growth from existing customers [5] Group 4: Growth Opportunities - The company highlighted its infrastructure monitoring solution, contributing $1.25 billion in ARR, and sees cloud security as a growing opportunity [6] - AI-native customers now account for 6% of ARR, up from 3% a year ago, with increased interest in AI inference workloads [7] - Datadog aims to leverage AI to not only monitor but also automatically address potential threats [10] Group 5: Market Position and Valuation - Datadog's stock trades at a forward price-to-sales (P/S) multiple of 12.8 times, which is considered high given the projected growth [11] - A more appealing valuation may arise if the stock trades down to a P/S multiple around 10 times [12]