Datadog (DDOG) Down 9.2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Datadog (DDOG). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Datadog due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Datadog Q4 Earnings Beat Estimates, Revenues Rise Y/Y
Datadog reported fourth-quarter 2023 non-GAAP earnings per share (EPS) of 44 cents, which increased 109.5% from the year-ago quarter and beat the Zacks Consensus Estimate by 2.33%.
The company’s net revenues of $589.6 million rose 25.6% year over year and beat the consensus estimate by 4.05%.
Quarter Details
The company ended the fourth quarter with 27,300 customers, up from 23,200 in the prior-year period.
In the fourth quarter of 2023, Datadog had 3,190 customers with an annual run rate (ARR) of $100,000 or more, which increased 15% year over year. These customers generated about 86% of the total ARR.
As of the end of the fourth quarter, 83% of customers used two or more products, up from 81% in the year-ago quarter. Additionally, 47% of customers utilized four or more products, up from 42% in the year-ago quarter.
Datadog’s net revenue retention was in the mid-110s in the fourth quarter as customers increased their usage and adopted more products.
Operating Details
In the fourth quarter, Datadog’s adjusted gross margin increased 290 basis points (bps) on a year-over-year basis to 83.4%.
Research & development expenses gained 14.8% on a year-over-year basis to $163.5 million, driven by increased investments in Datadog’s platform. Research & development, as a percentage of revenues, decreased 260 bps to 27.7%.
Sales and marketing expenses rose 5.3% year over year to $132 million. Sales and marketing expenses, as a percentage of revenues, contracted 430 bps to 22.4%.
General & administrative expenses increased 8.6% year over year, reaching $29.9 million in the reported quarter. General & administrative expenses, as a percentage of revenues, contracted 80 bps to 5.1%.
Datadog reported a non-GAAP operating income of $166.7 million compared with $83.1 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Dec 31, 2023, Datadog had cash, cash equivalents, restricted cash and marketable securities of $2.6 billion compared with $2.3 billion as of Sep 30, 2023.
Operating cash flow was $220.2 million in the reported quarter, up from $152.8 million reported in the previous quarter.
Free cash flow during the quarter was $201.3 million compared with $138.2 million in the prior quarter.
Guidance
For the first quarter of 2024, Datadog anticipates revenues between $587 million and $591 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 band of $128-$132 million.
For 2024, Datadog anticipates revenues between $2.555 billion and $2.575 billion. Non-GAAP EPS is projected between $1.38 and $1.44. Non-GAAP operating income is expected to be in the range of $535-$555 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -288.46% 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 an F. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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, Snap (SNAP), a stock from the same industry, has gained 4.4%. The company reported its results for the quarter ended December 2023 more than a month ago.
Snap reported revenues of $1.36 billion in the last reported quarter, representing a year-over-year change of +4.7%. EPS of $0.08 for the same period compares with $0.14 a year ago.
For the current quarter, Snap is expected to post a loss of $0.05 per share, indicating a change of -600% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.6% over the last 30 days.
Snap has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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