Datadog, Inc. Q3 FY2024 earnings

Datadog's FY2024 third quarter revenue was $690.0 million, up 26.0% from the prior-year quarter. Year-to-date revenue reached $1.95 billion, up 26.5%. The company said about 75% of the revenue increase came from existing customers and the remaining 25% from new customers. Customer growth remained a central part of the story. Total customers rose to about 29,200 from about 26,800 a year earlier. Customers with ARR of $100,000 or more reached about 3,490, up from about 3,130, and they represented 88% of ARR, up from 86%. The trailing 12-month dollar-based net retention rate was in the mid-110%'s, down from the high-110%'s a year earlier. Management attributed that decline to slower usage growth from existing customers, which it said may be related to the uncertain macroeconomic environment.

Profitability improved sharply on a GAAP basis. Gross profit was $552.3 million, up 24.3% from the prior-year quarter. Gross margin was 80.0%, down 1.1 percentage points from a year earlier, as higher spend with third-party cloud infrastructure providers weighed on the result. Operating income was $20.3 million, compared with an operating loss of $4.2 million in the prior-year quarter, and the operating margin was 2.9%, up 3.7 percentage points. Net income was $51.7 million, up 128.4% from $22.6 million a year earlier. Diluted earnings per share was $0.14, up from $0.06. For the nine months, net income was $138.2 million, a swing to a profit, and diluted earnings per share was $0.39. On a non-GAAP basis, operating income was $173 million, operating margin was 25%, and net income per diluted share was $0.46.

Cash generation and backlog metrics also grew. Third quarter operating cash flow was $228.7 million, up 49.7% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $204 million. Capital expenditures were $8.4 million, up 37.2% from the prior-year quarter. Year-to-date operating cash flow was $605.4 million, up 37.7%, and year-to-date free cash flow was $534.1 million. Year-to-date capital expenditures were $27.0 million, up 56.8%. Deferred revenue, current portion, was $795.8 million as of September 30, 2024, up 25.0% from a year earlier. Remaining performance obligations were $1.82 billion, up 26.0%.

Datadog highlighted product and platform progress. The company announced general availability of Datadog Monitoring for Oracle Cloud Infrastructure. It was named a Leader in the 2024 Gartner Magic Quadrant for Observability Platforms for the fourth year in a row and a Leader in the 2024 Gartner Magic Quadrant for Digital Experience Monitoring. It also released its State of Cloud Security 2024 report, which found that long-lived credentials remain a major risk across cloud providers. Product adoption broadened: approximately 83% of customers used more than one product, up from approximately 82%; about 49% used more than four, up from about 46%; about 26% used more than six, up from about 21%; and about 12% used more than eight, up from about 8%.

Guidance points to continued growth. For the fourth quarter of 2024, Datadog guided revenue to between $709 million and $713 million, non-GAAP operating income to between $163 million and $167 million, and non-GAAP net income per share to between $0.42 and $0.44, assuming about 361 million weighted average diluted shares. For the full year 2024, the company guided revenue to between $2.656 billion and $2.660 billion, non-GAAP operating income to between $658 million and $662 million, and non-GAAP net income per share to between $1.75 and $1.77, assuming about 359 million weighted average diluted shares. Management did not reconcile the non-GAAP guidance to GAAP because of uncertainty around stock-based compensation and employer payroll taxes on equity incentive plans. The main risks include the company's recent rapid growth not being indicative of future growth, a history of operating losses, dependence on existing customers purchasing additional subscriptions and renewing subscriptions, the ability to attract new customers, the ability to expand sales and marketing, security breaches, interruptions or performance problems, rapid technology changes, competition, managing growth, and general market, political, economic, and business conditions, including reduced economic growth and decreases in information technology spending. Macroeconomic uncertainty and slower usage growth from existing customers also remain watch items.