Datadog has further given an optimistic outlook for the entire year of 2023 while forecasting Q4 revenue between $564 million and $568 million.
On Tuesday, November 7, cloud monitoring software firm Datadog Inc (NASDAQ: DDOG) reported stronger-than-expected results for Q3 2023 following which its stock price shot up by 28%, thereby registering the highest-ever single-day gains.
Datadog Performance in Q3 2023
The company reported Q3 2023 revenue of $547.5 million, marking a 25% year-over-year increase and surpassing estimates. This growth rate aligns with Q2 results. Analysts, surveyed by LSEG (formerly Refinitiv), had anticipated revenue of $524.1 million. Adjusted earnings per share stood at 45 cents, exceeding the expected 34 cents.
Datadog has also raised its full-year revenue and profit projections. The company now forecasts Q4 revenue between $564 million and $568 million, with full-year revenue reaching approximately $2.1 billion. These figures surpass consensus estimates of $543.3 million and $2.06 billion, respectively, according to LSEG analysts.
During a conference call, Co-founder and CEO Olivier Pomel mentioned that “AI-native customers” contributed 2.5% of Datadog’s annualized revenue for the quarter. However, Pomel didn’t confirm any specific partnerships with companies like OpenAI, Anthropic, or Cohere, which provide access to large language models capable of generating text based on minimal human input.
Datadog’s upturn has positively impacted other cloud-computing companies, such as MongoDB and Snowflake. This recent guidance represents the most optimistic outlook Datadog has provided all year. The company’s stock experienced a significant drop in August following a guidance reduction due to decreased cloud spending by businesses.
Navigating the Macro Challenges
Datadog develops cloud monitoring and security solutions that are compatible with Amazon Web Services, Google Cloud, and Microsoft Azure. Established in 2010, the company went public on the Nasdaq in 2019.
In late October, major cloud infrastructure providers signaled that some organizations’ cost-cutting initiatives were slowing down. Like many cloud-related companies, Datadog also felt the effects of businesses tightening their budgets. CEO Olivier Pomel confirmed this trend, mentioning that optimization activities among Datadog clients might be leveling off.
“Overall, we continue to see the impact of optimization in our business, but we believe that the intensity and scope of optimization we’ve experienced in recent quarters are moderating.”
As Pomel noted, the fourth quarter has had a promising start, although usage tends to decrease during the holiday season.
Analysts at Bernstein Research, led by Peter Weed, expressed concerns before Datadog’s latest report about whether the company would follow the trend of improving quarter-over-quarter growth and maintaining steady year-over-year performance, or if it would show signs of disconnection and continue to experience year-over-year deceleration. According to the analysts, Datadog effectively addressed these concerns. They have given the stock the equivalent of a buy rating.
Read other business news on our website.