Surge in Datadog Stock Following Strong Q3 Earnings
Shares of cloud monitoring software firm Datadog surged nearly 30% in Tuesday trading after the company reported stronger-than-expected third-quarter earnings and full-year guidance.
Impressive Q3 Financial Results
The company reported quarterly revenue of $547.5 million, up 25% year-over-year, topping estimates. That growth rate was consistent with results in the second quarter. Analysts surveyed by LSEG, formerly Refinitiv, had expected revenue of $524.1 million. Datadog reported adjusted earnings per share of 45 cents, better than the 34 cents that analysts expected.
Upgraded Revenue and Profit Outlook
Datadog also bumped up its revenue and profit view for the full year. The company now expects fourth-quarter revenue between $564 million and $568 million, alongside full-year revenue of around $2.1 billion. That was above consensus estimates of $543.3 million and $2.06 billion, respectively, according to a survey of analysts by LSEG, formerly Refinitiv.
AI-Native Customers Contributing to Revenue Growth
Co-founder and CEO Olivier Pomel told analysts on a conference call that “AI-native customers” contributed 2.5% of Datadog’s annualized revenue during the quarter. Pomel declined to confirm if his company was working with OpenAI, Anthropic, or Cohere. All three sell access to large language models that can compose text based on a few words of human input.
Positive Impact on the Cloud Computing Sector
Datadog’s surge buoyed other cloud-computing names, including MongoDB and Snowflake.
Revised Guidance Reflects Optimism
The latest guidance is the cheeriest it’s been all year. Datadog stock fell significantly in August after it revised its guidance, citing continued reduction in cloud spending by companies.
Leading Provider of Cloud Monitoring and Security Products
Datadog builds cloud monitoring and security products that work with Amazon Web Services, Google Cloud, and Microsoft Azure. The company was founded in 2010 and debuted on the Nasdaq in 2019.
Optimization Activity Among Clients Moderating
The cloud infrastructure providers indicated last week that some organizations’ cost-reduction efforts have begun to wane. Like many cloud names, Datadog was not immune to corporate belt-tightening. Pomel validated that observation, saying that optimization activity among Datadog clients could be easing up. “Overall, we continue to see impact from optimization in our business, but we believe that the intensity and breadth of optimization we’ve experienced in recent quarters is moderating,” he said on Tuesday.
