Datadog, Inc. Q4 FY2023 earnings

Datadog closed fiscal 2023 with fourth-quarter revenue of $589.6 million, up 25.6% from the prior-year quarter. Gross profit was $484.8 million, up 30.1%, and gross margin was 82.2%, up 2.8 percentage points year over year. The company reported operating income of $27.7 million, swinging to a profit from the prior-year quarter, and operating margin was 4.7%, up 12.1 percentage points. Net income was $54.0 million, also swinging to a profit. Operating cash flow was $220.2 million, up 92.4% from the prior-year quarter. Free cash flow was $201.3 million. Capital expenditures were $10.4 million, up 3.4%.

For the full fiscal year, revenue was $2.13 billion, up 27.1%. Gross profit was $1.72 billion, up 29.4%, and gross margin was 80.7%, up 1.4 percentage points. The company reported an operating loss of $33.5 million, which narrowed from the prior-year period, and operating margin was negative 1.6%, up 1.9 percentage points. Net income was $48.6 million, swinging to a profit, and diluted earnings per share was $0.14, swinging to a profit. Operating cash flow was $660.0 million, up 57.7%. Capital expenditures were $27.6 million, down 21.8% from the prior-year period. Free cash flow was $597.5 million.

Customer metrics show expansion among larger accounts. As of December 31, 2023, Datadog had 396 customers with ARR of $1 million or more, up 25% from 317 a year earlier. It had about 3,190 customers with ARR of $100,000 or more, up 15% from 2,780. Total customers were approximately 27,300, compared with approximately 23,200 a year earlier. Product adoption deepened: approximately 83% of customers used more than one product, up from 81%; approximately 47% used more than four products, up from 42%; and approximately 22% used more than six products, up from 18%. Deferred revenue was $765.7 million, up 41.0% from the prior-year quarter, and remaining performance obligations were $1.84 billion, up 74.0%. The trailing 12-month dollar-based net retention rate was in the mid-110%'s, down from the mid-140%'s a year earlier. Revenue from outside North America was approximately 30% of total revenue for fiscal 2023, compared with approximately 28% for fiscal 2022.

Guidance points to continued growth but slower than the fiscal 2023 rate. For the first quarter of 2024, Datadog expects revenue between $587 million and $591 million, non-GAAP operating income between $128 million and $132 million, and non-GAAP net income per share between $0.33 and $0.35, based on approximately 357 million weighted average diluted shares. For the full fiscal year 2024, the company expects revenue between $2.555 billion and $2.575 billion, non-GAAP operating income between $535 million and $555 million, and non-GAAP net income per share between $1.38 and $1.44, based on approximately 361 million weighted average diluted shares. The non-GAAP net income guidance reflects an assumed provision for income taxes based on a long-term projected tax rate of 21%. Datadog has not reconciled these non-GAAP guidance measures to GAAP because of uncertainty about stock-based compensation and employer payroll taxes on equity incentive plans.

The risk section remains broad. Datadog cites macroeconomic uncertainty, rising inflation, interest rate increases, the Russian invasion of Ukraine, the conflict in the Middle East, and the COVID-19 pandemic as factors that could slow information technology spending. The company also notes slower usage growth from existing customers and a decline in its trailing 12-month dollar-based net retention rate. Other stated risks include its recent rapid growth not being indicative of future growth, a history of operating losses, dependence on existing customers purchasing additional subscriptions and renewing, the ability to attract new customers, competition, security breaches, and interruptions or performance problems. The 10-K also flags risks tied to managing growth and general market, political, economic, and business conditions.