Key points
- Datadog is an observability and infrastructure monitoring platform for enterprises, comprising 42% of Fortune 500 companies, up from 37% in the same period a year ago.
- Datadog’s CEO has calmed investors as the worst of the “optimization” problems appear to be over as his business team achieves record bookings in the fourth quarter of 2023.
- Datadog shares initially fell 9% from lowered forecasts for 2024, but have managed to recover as they ramp up hiring and R&D spending in 2024.
- 5 titles we prefer to Datadog
Datadog Inc. NASDAQ: DOG is a cloud-based observability, monitoring and security platform for enterprise networks. THE IT and technology sector leader helps companies monitor their complete infrastructure across any application, stack and log at any scale in real time.
The scale can include over 10,000 hosts and millions of network flows down to a single transaction. It allows companies to collect and analyze data from their full stack, including databases, servers, containers, and cloud services. In 2023 it released 400 new platform features with over 700 turnkey integrations.
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The platform’s artificial intelligence (AI)-based anomaly detection provides robust, customizable, and actionable incident management and alerting capabilities.
It uses machine learning (ML)-driven anomaly detection and prediction to help businesses gain deeper insights into patterns, trends, and outliers. The company emphasizes ease of use as you can pivot with a single click between metrics, traces and logs to provide the right response to every error and incident.
Its platform supports Amazon.com Inc. NASDAQ:AMZN AWS serverless applications, Microsoft Co. NASDAQ:MSFT Light blue and Alphabet Inc. NASDAQ:GOOGL, owned by Google Cloud. It expanded its strategic partnership with Google to become an early Vertex AI platform partner.
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Constant quarterly beats
On Feb. 13, Datadog reported fiscal fourth-quarter 2023 earnings per share of 44 cents, beating analysts’ estimates by a cent. Non-GAAP operating profit increased 28% year-over-year (YOY) to $166.7 million with a non-GAAP operating margin of 28%.
Operating cash flow was $220.2 million, with free cash flow of $201.3 million. Datadog ended the quarter with $2.6 billion in cash and cash equivalents. Datadog increased its ARR customer base by $1 million to 396, up from 317 in the same period a year ago. Revenue increased 25.6% year-over-year to $589.65 million, beating consensus analyst estimates of $568.73 million.
Lowball guide
Datadog gave mixed guidance for the fiscal first quarter of 2024, with expected EPS of 33 cents to 35 cents versus analysts’ consensus estimates of 39 cents. Expected revenues are between $587 million and $591 million versus estimates of $586.80 million.
Shares fell from full-year 2024 EPS guidance of $1.38 billion to $1.44 billion, falling short of consensus estimates of $1.77 billion. Full-year 2024 revenues are expected to be between $2.555 billion and $2.575 billion, according to consensus estimates.
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Optimization problems are alleviated
Datadog CEO Olivier Pomel helped calm investors’ nerves about the guidance during the earnings conference call. Pomel pointed out some bullish data.
He noted that Datadog’s added sequential ARR was net higher in the fourth quarter of 2023 compared to the year-ago period as the company signs more multi-year deals. Its corporate team achieved record annualized bookings in the fourth quarter of 2023. The company also plans to increase, not layoff, hiring and strengthen R&D investments in 2024. Datadog had approximately 3,190 customers with an ARR of $100,000 or more, which is up 15% year over year. Adoption was strong as 47% of customers use four or more products, up 42% year over year.
Pomel commented: “We expect them to make sure they use their cloud efficiently and continuously, and we will continue to help them do that. And we still see cost focus in some parts of our customer base, but overall, we see fewer headwinds compared to a few quarters ago.” This means that the cost optimization cycle for its customers has hit rock bottom.
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Daily ascending triangle pattern
The daily candlestick chart on DDOG illustrates an ascending triangle pattern. The uptrend developed at the low of $110.70 on January 3.
It triggered a market structure low (MSL) breakout to $117.04 and rose with each higher low, while the flat upper trendline rejected each retest at $138.61. The earnings gap and trap occurred on February 13, when shares fell as low as $123.50 on its earnings report and rose as high as $138.61 on optimism that Datadog was lowering his predictions.
The 50-period daily moving average (MA) support is rising at $123.96. The relative strength index (RSI) is falling towards the 50 band. The pullback support levels are at $123.50, $117.04, $112.59, and $105.86.
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