Datadog DDOG delivered robust fourth-quarter 2024 results that exceeded the Zacks Consensus Estimate, however shares tumbled roughly 9% as the corporate’s conservative 2025 steerage overshadowed the spectacular efficiency. Buyers now face a vital determination: maintain their positions or await a greater entry level in what seems to be a transitional yr for the cloud monitoring chief.
Datadog has emerged as a formidable chief within the cloud monitoring and safety area, with its inventory rising 12.5% over the previous six months. Regardless of working in a aggressive panorama with established gamers like New Relic, Dynatrace and Splunk, DDOG has efficiently differentiated itself via its unified platform strategy and complete multi-cloud integrations.
6-Month DDOG Inventory Value Efficiency
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On the coronary heart of Datadog’s technique is its means to supply complete visibility throughout multi-cloud infrastructures. By integrating deeply with Amazon AMZN-owned Amazon Net Providers, Alphabet GOOGL-owned Google Cloud and Microsoft MSFT Azure, Datadog allows organizations to watch, analyze and optimize their complete cloud ecosystem from a single platform. This unified strategy is especially invaluable as companies more and more undertake hybrid and multi-cloud methods to reinforce flexibility and keep away from vendor lock-in.
DDOG Crushes This fall Outcomes
The cloud observability platform reported strong fourth-quarter 2024 outcomes with income reaching $738 million, up 25.1% yr over yr and comfortably exceeding analyst expectations of $714 million. Non-GAAP earnings per share got here in at 49 cents, which surpassed the consensus mark of 43 cents and elevated 11.4% from the year-ago quarter.
Datadog’s buyer metrics remained robust, with the corporate reporting roughly 30,000 prospects by the quarter’s finish, up from 27,300 a yr in the past. Extra importantly, prospects producing annual recurring income (ARR) of $1 million or extra elevated to 462, up 17% yr over yr, whereas prospects with ARR of $100,000 or extra grew 13% to about 3,610.
The corporate’s platform technique continues to resonate with prospects. By the tip of the fourth quarter, 83% of shoppers had been utilizing two or extra merchandise, 50% had been utilizing 4 or extra (up from 47% a yr in the past), and 26% had been utilizing six or extra (up from 22%). These cross-selling metrics point out Datadog’s success in increasing inside its current buyer base.
Datadog’s Regarding 2025 Outlook
Regardless of the robust fourth-quarter outcomes, Datadog’s steerage for fiscal 2025 dissatisfied traders. The corporate projected revenues between $3.175 billion and $3.195 billion, suggesting 18-19% progress, considerably under the 25% progress achieved in fourth-quarter 2024. First-quarter 2025 income steerage of $737-$741 million implies simply 21% year-over-year progress and minimal sequential progress from the fourth quarter.
The decelerating progress trajectory caught traders off guard, particularly contemplating the corporate’s document bookings quarter with greater than $1 billion in bookings for the primary time. Administration attributed the conservative outlook to their steerage philosophy, which bases projections on latest tendencies with added conservatism slightly than incorporating potential acceleration from elevated investments.
The Zacks Consensus Estimate for 2025 revenues is pegged at $3.19 billion, indicating 18.79% progress yr over yr. The consensus mark for earnings has moved south by a penny to $1.93 per share over the previous 30 days. The determine signifies progress of 6.04% yr over yr.
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AI Affect and Progress Investments
Datadog’s AI-related enterprise continues to point out promise, with AI native prospects representing roughly 6% of fourth-quarter ARR and contributing about 5 share factors to year-over-year income progress. The corporate famous that whereas the adoption of AI workloads brings alternatives, the quick monetization of GPU monitoring stays restricted as these workloads are nonetheless primarily confined to AI native corporations slightly than mainstream enterprise adoption.
Administration stays bullish on long-term prospects, emphasizing its dedication to investing for future progress. The corporate plans to develop working bills within the excessive 20% vary yr over yr in 2025, with important investments in each gross sales and advertising and marketing and R&D. This spending technique goals to capitalize on alternatives in under-penetrated geographies, channel partnerships and enterprise accounts.
Strategic Product Developments of DDOG
The corporate highlighted a number of strategic product developments, together with the final availability launch of Datadog On-Name and robust buyer curiosity of their flex logs answer. Administration famous a aggressive opening within the log administration area as a result of latest M&A exercise amongst rivals, which may current progress alternatives.
Datadog additionally expanded its safety choices, launching a contemporary strategy to Cloud SIEM that does not require devoted workers, and enhanced its Kubernetes monitoring capabilities. These developments strengthen the corporate’s aggressive place in observability and adjoining markets.
Funding Perspective: Maintain DDOG or Wait?
For present shareholders, sustaining positions could also be prudent regardless of near-term volatility. Datadog’s robust platform adoption metrics, increasing product portfolio, and investments in progress initiatives recommend the corporate is positioning for long-term success. The 29% free money circulation margin demonstrates monetary power that helps these investments whereas sustaining profitability.
Nonetheless, new traders may profit from ready for a greater entry level. The numerous disconnect between document bookings and conservative income steerage suggests a transitional interval as Datadog digests latest buyer optimizations and investments take time to yield outcomes. Administration explicitly famous that gross sales and advertising and marketing investments sometimes impression leads to one to 2 years, whereas R&D investments present returns in two to a few years.
The inventory’s valuation stays expensive regardless of the post-earnings pullback, reflecting Datadog’s market management however providing a restricted margin of security if progress continues to decelerate. The inventory trades at a premium with a ahead 12-month P/S ratio of 13.54x in comparison with the broader Zacks Internet – Software business’s 3.15x.
DDOG P/S Ratio Depicts Stretched Valuation
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Potential traders ought to monitor enterprise AI adoption tendencies, which may speed up Datadog’s progress past conservative projections if mainstream corporations start deploying extra AI workloads.
Conclusion
In conclusion, whereas Datadog’s fourth-quarter outcomes show continued execution excellence, the tempered 2025 outlook warrants warning. Lengthy-term traders ought to maintain positions via this transitional interval, whereas these trying to set up new positions may profit from endurance as the corporate’s investments mature and progress doubtlessly reaccelerates in late 2025 or 2026. DDOG inventory at the moment carries a Zacks Rank #3 (Maintain). You may see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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