Datadog (NASDAQ:DDOG) Exceeds Q1 Expectations But Stock Drops 10.6%

Cloud monitoring software company Datadog (NASDAQ:DDOG) beat analysts' expectations in Q1 CY2024, with revenue up 26.9% year on year to $611.3 million. The company expects next quarter's revenue to be around $622 million, in line with analysts' estimates. It made a non-GAAP profit of $0.44 per share, improving from its profit of $0.23 per share in the same quarter last year.

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Datadog (DDOG) Q1 CY2024 Highlights:

• Revenue: $611.3 million vs analyst estimates of $591.7 million (3.3% beat)
• Billings: $618.0 million vs analyst estimates of $619.3 million (slight miss)
• EPS (non-GAAP): $0.44 vs analyst estimates of $0.34 (27.8% beat)
• Revenue Guidance for Q2 CY2024 is $622 million at the midpoint, roughly in line with what analysts were expecting
• The company lifted its revenue guidance for the full year from $2.57 billion to $2.6 billion at the midpoint, a 1.4% increase
• Gross Margin (GAAP): 82%, up from 79.3% in the same quarter last year
• Free Cash Flow of $186.7 million, similar to the previous quarter
• Customers: 3,340 customers paying more than $100,000 annually
• Market Capitalization: $42.44 billion

"Datadog executed solidly in the first quarter, with 27% year-over-year revenue growth and continued product innovation across our platform," 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 MonitoringSoftware is eating the world, increasing organizations’ reliance on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical and ever more complex. To solve this challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with the visibility to troubleshoot issues in real-time.

Sales GrowthAs you can see below, Datadog's revenue growth has been impressive over the last three years, growing from $198.5 million in Q1 2021 to $611.3 million this quarter.

This quarter, Datadog's quarterly revenue was once again up a very solid 26.9% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $21.6 million in Q1 compared to $42.11 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Datadog is expecting revenue to grow 22.1% year on year to $622 million, slowing down from the 25.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 20.4% over the next 12 months before the earnings results announcement.

Large Customers Growth This quarter, Datadog reported 3,340 enterprise customers paying more than $100,000 annually, an increase of 150 from the previous quarter. That's quite a bit more contract wins than last quarter and about the same as what we've seen in past quarters, demonstrating that the business has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

Key Takeaways from Datadog's Q1 Results We were impressed by Datadog's significant improvement in new large contract wins this quarter. We were also glad its revenue outperformed Wall Street's estimates. However, billings missed. Overall, this quarter's results seemed fairly positive, although the billings blemish means it wasn't perfect. Valuation is high, and the market was likely expecting more. The stock is down 10.7% after reporting, trading at $113.4 per share.