Olivier Pomel, co-founder and CEO of Datadog, speaks at the company’s Dash conference in San Francisco on Aug. 3, 2023.
Datadog
Shares of cloud monitoring software firm Datadog soared 28% on Tuesday, their best day ever, after the company reported stronger-than-expected third-quarter earnings and full-year guidance.
The company reported quarterly revenue of $547.5 million, up 25% year over year, topping estimates. That growth rate was consistent with results in the second quarter. Analysts surveyed by LSEG, formerly known as Refinitiv, had expected revenue of $524.1 million. Adjusted earnings per share came out to 45 cents, better than the 34 cents analysts expected.
Datadog also bumped up its revenue and profit view for the full year. The company now expects fourth-quarter revenue between $564 million and $568 million, alongside full-year revenue of around $2.1 billion. The figures exceeded consensus of $543.3 million and $2.06 billion, respectively, according to a survey of analysts by LSEG.
Co-founder and CEO Olivier Pomel told analysts on a conference call that “AI-native customers” contributed 2.5% of Datadog’s annualized revenue during the quarter. Pomel declined to confirm if his company was working with OpenAI, Anthropic or Cohere. All three sell access to large language models that can compose text based on a few words of human input.
Datadog’s surge buoyed other cloud-computing names, including MongoDB and Snowflake.
The latest guidance is the cheeriest Datadog has been all year. Its stock fell sharply in August after lowering guidance as companies reduced cloud spending.
Datadog builds cloud monitoring and security products that work with Amazon Web Services, Google Cloud and Microsoft Azure. The company was founded in 2010 and debuted on the Nasdaq in 2019.
The cloud infrastructure providers indicated in late October that some organizations’ cost-reduction efforts have begun to wane. Similar to many cloud names, Datadog was not immune to corporate belt-tightening. Pomel validated that observation, saying optimization activity among Datadog clients could be easing up. “Overall, we continue to see impact from optimization in our business, but we believe that the intensity and breadth of optimization we’ve experienced in recent quarters is moderating,” he said Tuesday.
The fourth quarter is off to a good start, although usage does tend to fall around the holidays, Pomel said.
“Into the print there was a lot of anxiety about whether Datadog would follow AWS to improving QoQ growth and stable YoY, or demonstrate a worried disconnect and continue to decelerate on a YoY basis,” Bernstein Research analysts led by Peter Weed wrote in a Tuesday note. “Datadog emphatically dispelled these worries.” The analysts have the equivalent of a buy rating on the stock.
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