The Stock of Datadog Drops as Its Outlook for the First Quarter Implies Minimal Growth

Datadog Inc. surpassed expectations in its recent quarterly results, but the stock faced premarket pressure on Tuesday due to a revenue forecast for the current quarter indicating minimal sequential growth.

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For the first quarter, Datadog projected revenue in the range of $587 million to $591 million, along with adjusted earnings per share between 33 cents and 35 cents. Analysts had anticipated revenue of $587 million and 39 cents in adjusted EPS. TD Cowen analyst Andrew Sherman noted that the upper limit of Datadog's revenue outlook only suggests approximately $1 million in incremental revenue compared to the fourth quarter, a factor influencing the stock's decline.

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In premarket trading on Tuesday, shares of Datadog, a software-as-a-service company specializing in observability and security offerings, were down 10%.

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The company's full-year forecast envisions revenue between $2.555 billion and $2.575 billion, coupled with adjusted earnings per share ranging from $1.38 to $1.44. Analysts, however, had higher expectations, anticipating $2.586 billion in revenue and $1.77 in adjusted EPS.

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Datadog reported fourth-quarter net income of $54 million, or 15 cents per share, a significant improvement from the net loss of $29 million, or 9 cents per share, in the same period the previous year. On an adjusted basis, Datadog earned 44 cents per share, exceeding the FactSet consensus estimate of 43 cents per share.

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Revenue for the fourth quarter surged to $589.6 million from $469.4 million, surpassing the FactSet consensus of $568.7 million. The robust financial performance in the fourth quarter contributed to the positive outlook for Datadog.

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As of the end of December, Datadog reported having 396 customers with annual recurring revenue of at least $1 million, marking a substantial increase from the count of 317 customers a year earlier. This growth in high-value customers indicates the company's ability to expand its market presence and attract significant recurring revenue.

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While the revenue forecast for the current quarter appears to have prompted a decline in the stock, Datadog's overall performance and its increasing customer base signal resilience and a positive trajectory. Investors and analysts will likely monitor how the company navigates the upcoming challenges and capitalizes on opportunities in the dynamic software and services sector.

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