Shares of Datadog (DDOG 4.95%) fell as much as 8.4% early Tuesday, then briefly turned positive before closing the day down 2.4% after the cloud-based data analytics platform's conservative forward outlook overshadowed an otherwise strong quarterly update.
Datadog is enjoying operating leverage at scale
Datadog's fourth-quarter 2023 revenue grew 26% year over year to $589.6 million, translating to generally accepted accounting principles (GAAP) net income of $0.15 per share (compared to a loss of $0.09 per share a year ago). Adjusted for non-recurring items like stock-based compensation tax provisions, Datadog's non-GAAP earnings were $0.44 per share. Analysts, on average, were expecting slightly lower earnings on revenue closer to $568 million.
Datadog also generated an impressive free cash flow of $201.3 million during the quarter, fueled by operating leverage at scale as both new and existing customers expanded their use cases for the company's leading observability platform. Datadog ended the year with 396 customers generating annual recurring revenue (ARR) of at least $1 million, up 25% year over year. Its number of clients generating ARR of at least $100,000 also climbed 15% to 3,190.
What's next for Datadog stock?
For the full year 2024, however, Datadog issued guidance for revenue of between $2.555 billion and $2.575 billion -- up around 20.4% at the midpoint -- which should translate to adjusted net income per share of between $1.38 and $1.44. In this case, most analysts were looking for higher 2024 earnings of $1.83 per share, with a slightly more aggressive 22.8% growth in revenue to $2.59 billion.
At the same time, this wasn't exactly a drastic guidance miss relative to Wall Street's expectations. Datadog could be positioning itself to outperform yet again with its conservative outlook when all is said and done this year. For now, I'm perfectly content to hang onto my shares and watch Datadog continue to deliver healthy, profitable growth and cash flow in the meantime.
