Datadog (DDOG) Up 12.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Datadog (DDOG). Shares have added about 12.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Datadog due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Datadog Q2 Earnings Beat Estimates, Revenues Rise Y/Y
Datadog reported second-quarter 2023 non-GAAP earnings per share (EPS) of 36 cents, which increased 50% from the year-ago quarter, beating the Zacks Consensus Estimate for earnings by 28.6%.
The company’s net revenues of $509.5 million increased 25.4% year over year and beat the consensus estimate by 1.82%.
Quarter Details
The company ended the second quarter with 26,100 customers, up from 21,200 in the prior-year period.
In the second quarter of 2023, Datadog had 2,990 customers with ARR of $100,000 or more, which increased 24% year over year. These customers generated about 85% of the total ARR.
As of the second-quarter end, 82% of customers used two or more products, up from 79% in the year-ago quarter. Additionally, 45% of customers utilized four or more products, up from 37% in the year-ago quarter.
Datadog’s dollar-based retention rate was more than 120% in the second quarter as customers increased their usage and adopted more products.
Operating Details
In the second quarter, Datadog’s adjusted gross margin increased 50 basis points (bps) on a year-over-year basis to 81.3%.
Research & development expenses gained 30.3% on a year-over-year basis to $158.4 million, driven by increased investments in Datadog’s platform. Research & development, as a percentage of revenues, increased 120 bps to 31.1%.
Sales and marketing expenses increased 24% year over year to $120.1 million. Sales and marketing expenses, as a percentage of revenues, contracted 30 bps to 23.6%.
General & administrative expenses increased 15.8% year over year, reaching $29 million in the reported quarter. General & administrative expenses, as a percentage of revenues, contracted 50 bps to 6.2%.
Datadog reported a non-GAAP operating income of $106.4 million compared with $84.7 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2023, Datadog had cash, cash equivalents, restricted cash and marketable securities of $2.2 billion compared with $2 billion as of Mar 31.
Operating cash flow was $153.2 million in the reported quarter, up from $133.8 million in the first quarter.
Free cash flow during the quarter was $141.7 million compared with $116.3 million in the first quarter.
Guidance
For the third quarter of 2023, Datadog anticipates revenues between $521 million and $525 million. Non-GAAP EPS is expected to be in the range of 33-35 cents. Non-GAAP operating income is expected to be in the range of $98-$102 million.
For 2023, Datadog anticipates revenues between $2.05 billion and $2.06 billion. Non-GAAP EPS is expected to be between $1.30 and $1.34. Non-GAAP operating income is expected to be in the range of $390-$400 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 125.49% due to these changes.
VGM Scores
At this time, Datadog has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Datadog has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Datadog is part of the Zacks Internet - Software industry. Over the past month, Aspen Technology (AZPN), a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended June 2023 more than a month ago.
Aspen Technology reported revenues of $320.64 million in the last reported quarter, representing a year-over-year change of +34.2%. EPS of $2.13 for the same period compares with $2.43 a year ago.
For the current quarter, Aspen Technology is expected to post earnings of $1.41 per share, indicating a change of -35.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Aspen Technology has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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Datadog, Inc. (DDOG) : Free Stock Analysis Report
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