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Datadog DDOG is scheduled to release third-quarter 2024 results on Nov. 7.
For the third quarter of 2024, Datadog anticipates revenues between $660 million and $664 million. The Zacks Consensus Estimate for the same is currently pegged at $662.55 million, suggesting 21% growth from the year-ago period.
Non-GAAP earnings per share are expected in the range of 38-40 cents. The Zacks Consensus Estimate for earnings has remained unchanged at 39 cents per share over the past 30 days, indicating a decline of 13.3% from the year-ago period.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
In the last reported quarter, Datadog delivered an earnings surprise of 22.86%. Datadog’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 21.74%.
Datadog, Inc. Price and EPS Surprise
Datadog, Inc. Price and EPS Surprise
Datadog, Inc. price-eps-surprise | Datadog, Inc. Quote
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Datadog this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Datadog has an Earnings ESP of +0.60% and a Zacks Rank #4 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Consider
Datadog’s third-quarter performance is expected to have been driven by the company's cloud-based monitoring and analytics platform. The ongoing trend of digital transformation and cloud migration across various industries is expected to have boosted demand for DDOG's services, potentially leading to significant growth in the company's customer base and revenues.
In the first quarter of 2024, Datadog reported impressive customer metrics that are likely to have continued into the third quarter. The company had 3,390 customers with an annual run rate (ARR) of $100,000 or more, which increased 13% year over year. These customers generated about 87% of the total ARR.
As of June 30, 2024, 83% of customers used two or more products, up from 82% in the year-ago quarter. Additionally, 49% of customers utilized four or more products, up from 45% in the year-ago quarter, highlighting Datadog's success in attracting and retaining enterprise-level customers.
The company's multi-cloud and multi-vendor approach allows customers to monitor their entire cloud infrastructure from a single platform, regardless of the cloud providers they use. This unified view enables organizations to optimize performance, troubleshoot issues and maintain robust security across diverse cloud environments.
Datadog operates in a competitive observability and monitoring market, facing rivals, such as New Relic, Dynatrace DT and Splunk. While Datadog has differentiated itself through its unified platform and multi-cloud integrations, its competitors also offer robust solutions and have established customer bases. Additionally, tech giants like Microsoft MSFT and Amazon AMZN have their own monitoring tools, potentially posing a threat to Datadog's market share.
Significant investments in sales and marketing to engage customers, increase brand awareness and drive adoption of its platform and products are expected to have weighed on profit margins in the to-be-reported quarter.
Product Innovation to Aid DDOG’s Clientele in Q3
As Datadog approaches its third-quarter earnings report, the company's recent product innovations and expansions are expected to play a crucial role in driving growth and attracting new clients.
The quarter under review has seen Datadog announce the general availability of LLM Observability, which allows AI application developers and machine learning (ML) engineers to efficiently monitor, improve and secure large language model (LLM) applications.
Datadog made new additions to its security product portfolio, including Agentless Scanning, Data Security and Code Security, which allow DevOps and security teams to easily secure their code, cloud environments and production applications.
Datadog announced the launch of Datadog Kubernetes Autoscaling, a set of capabilities that intelligently automates resource optimization and can automatically scale customers’ Kubernetes environments based on real-time and historical utilization metrics.
Price Performance & Valuation
Datadog has seen its stock return 3.4% year to date, underperforming the Zacks Computer and Technology sector’s return of 23.9%. This pullback has some investors wondering if it is a selling opportunity for the high-growth software company ahead of third-quarter earnings results.
Year-to-Date Performance
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Additionally, the company's valuation may be a concern for some investors, as the stock trades at a premium compared to the broader Zacks Internet - Software industry. As of the latest data, Datadog’s forward 12-month P/S ratio hovers around 13.7, reflecting investors' high growth expectations. This valuation is justified by Datadog's strong revenue growth, expanding customer base and increasing product adoption.
DDOG’s P/S F12M Ratio Depicts Stretched Valuation
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Investment Thesis
While Datadog maintains its position as a leader in cloud observability, concerns emerge ahead of third-quarter 2024 earnings amid intensifying competition and macroeconomic headwinds affecting tech spending. Despite strong platform capabilities and customer retention, margin pressure from aggressive sales and marketing investments, coupled with growing competition from established players like Microsoft, Amazon and the Splunk-Cisco merger, raises profitability concerns. The company's premium valuation appears vulnerable given moderating growth rates, potential enterprise budget constraints and increasing pricing pressure in the observability market. Though long-term secular trends remain favorable, near-term challenges and market saturation fears suggest caution is warranted heading into third-quarter results.
Final Thought
Given Datadog's premium valuation multiples and heightened competitive pressures from industry consolidation (notably the Splunk-Cisco merger), investors may benefit from waiting for a more attractive entry point ahead of third-quarter earnings results despite the company's strong market position and product suite. While Datadog's platform capabilities and customer retention metrics remain robust, the combination of aggressive sales and marketing investments pressuring margins, potential enterprise IT spending constraints and near-term macroeconomic uncertainties suggests a cautious approach. Investors holding the stock should maintain positions given long-term secular tailwinds in cloud observability but new investors might find better risk-reward opportunities after gaining more clarity on margin trajectory and competitive dynamics from the third-quarter 2024 earnings results.
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