Here's our initial take on Datadog's (DDOG 0.26%) fourth-quarter financial report.
Key Metrics
| Metric | Q4 2023 | Q4 2024 | Change | vs. Expectations |
|---|---|---|---|---|
| Total revenue | $590 million | $738 million | +25% | Beat |
| Adjusted earnings per share | $0.44 | $0.49 | +11% | Beat |
| Customers > $100K ARR | 3,190 | 3,610 | +13% | n/a |
| Free cash flow | $201 million | $241 million | +20% | n/a |
Trouble 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 adjusted earnings of $0.49 per share for the quarter and $1.82 per share for the year were both above what most of those following Datadog had anticipated. The company had 462 customers spending $1 million or more annually on Datadog's platform, up 17% from 12 months ago, showing the sticking power of the platform for its biggest users.
However, investors weren't as happy about Datadog's projections for 2025. Full-year revenue of $3.175 billion to $3.195 billion would represent a slowdown in growth to between 18% and 19%. Moreover, calls for adjusted earnings of between $1.65 and $1.70 per share would be an outright decline from 2024's final numbers.
Co-founder/CEO Olivier Pomel didn't directly address the guidance in prepared remarks for the press release, instead focusing his praise for the company's success in coming out with hundreds of new features to assist in cloud migration and adopting next-generation AI. Reading behind the lines, though, it's evident that adding those features costs money, and it could take further investment from Datadog in 2025 in order to keep up with the rapid pace of innovation across the industry.
NASDAQ: DDOG
Key Data Points
Immediate Market Reaction
Investors weren't comfortable with Datadog's weaker guidance, and the stock fell almost 9% in premarket trading early Thursday an hour after the company released its financial report. With most analysts anticipating sales growth in the low-20% range and earnings closer to $2 per share, the negative reaction was understandable.
What to Watch
Further supporting the idea that Datadog might be looking to spend more money on innovation was its December offering of convertible senior notes, which ended up getting upsized to a full $1 billion. The nice thing is that by offering the equity kicker, Datadog was able to secure a 0% interest rate on the five-year notes. With an earlier set of convertible notes maturing this year, it'll be interesting to see whether Datadog uses cash from the latest offering to satisfy its obligations to bondholders or simply issues new stock.
In any event, Datadog will need to reassure shareholders that its growth won't lag as much as it suggests in its 2025 guidance. We'll be watching closely in future quarters to see what progress Datadog is making toward outperforming its targets.
