Datadog, Inc. Q4 FY2022 earnings

Datadog ended fiscal 2022 with fourth quarter revenue of $469.4 million, up 43.9% from the prior-year quarter. Full-year revenue reached $1.68 billion, up 62.8%. Gross profit in the quarter was $372.6 million, and gross margin was 79.4%, flat versus the prior-year quarter. The full-year gross margin was 79.3%, up 2.1 percentage points. That top-line growth still came with GAAP losses. The fourth quarter GAAP operating loss was $34.6 million, down from positive operating income a year earlier, and the GAAP operating margin was -7.4%, down 10.0 percentage points from the prior-year quarter. The full-year GAAP operating loss widened to $58.7 million, with the operating margin down 1.6 percentage points to -3.5%. The gap between GAAP and non-GAAP results remains wide. Non-GAAP operating income was $83.1 million in the quarter and $326.3 million for the full year.

GAAP net loss was $29.0 million in the fourth quarter, down from net income in the prior-year quarter. The full-year GAAP net loss widened to $50.2 million, and diluted loss per share widened to $0.16. Operating cash flow was $114.4 million in the quarter, down 1.2% from the prior-year quarter. Full-year operating cash flow rose 46.0% to $418.4 million. Free cash flow, a non-GAAP measure, was $96.4 million in the quarter and $353.5 million for the full year. Capital expenditures were $10.1 million in the quarter, up 318.0% from the prior-year quarter. Deferred revenue was $543.0 million, up 46.0% year over year, and remaining performance obligations were $1.06 billion, up 29.7%.

Datadog's customer base continued to expand. The company had 317 customers with ARR of $1 million or more as of December 31, 2022, up 47% from 216 a year earlier. It had about 2,780 customers with ARR of $100,000 or more, up 38% from 2,010. Total customers were approximately 23,200, compared with approximately 18,800 as of December 31, 2021. The dollar-based net retention rate was above 130% as of both December 31, 2022 and 2021. Customers with ARR of $100,000 or more represented 85% of ARR, up from 83%. Product adoption also broadened: approximately 81% of customers used more than one product, up from 78%; approximately 42% used more than four products, up from 33%; and approximately 18% used more than six products, up from 10%. Revenue from regions outside North America was approximately 28% of total revenue for each of fiscal 2022 and 2021. On the product front, Datadog launched Universal Service Monitoring, announced an integration with Amazon Security Lake, and was named a Leader in the Forrester Wave Artificial Intelligence for IT Operations, Q4 2022.

Management provided guidance for the first quarter of 2023 and the full fiscal year 2023. For the next quarter, Datadog expects revenue between $466 million and $470 million, non-GAAP operating income between $68 million and $72 million, and non-GAAP net income per share between $0.22 and $0.24, assuming about 348 million weighted average diluted shares. For the full fiscal year 2023, the company guided revenue between $2.07 billion and $2.09 billion, non-GAAP operating income between $300 million and $320 million, and non-GAAP net income per share between $1.02 and $1.09, assuming about 351 million weighted average diluted shares. Datadog did not reconcile these non-GAAP guidance figures to GAAP. The 10-K and press release flag several risks: macroeconomic uncertainty, rising inflation, higher interest rates, the war in Ukraine, and the possibility that businesses slow information technology spending. Management also noted slower usage growth from some existing customers, which may be tied to the uncertain economy. Other risks include competition, security breaches, and the challenge of managing rapid growth. The company has a history of net losses, and GAAP profitability remains uneven even as revenue and cash flow grow. The company also said it may increase costs and expenses as office activity, travel, and hiring increase, which could pressure margins in future quarters.