Datadog, a rising star in cloud monitoring


Operational Overview

Company introduction

Datadog uses the data provided by the SaaS program to monitor servers, databases, tool programs, and services, and provides overall monitoring and management services for the cloud computing environment platform.

Key operating figures for Q4 2022

For the fourth quarter of 2022, Datadog’s key operating figures are as follows:

  • It has 2,780 clients with an annual revenue of $100,000 or more, up from 2,010 clients a year earlier. Among them, there are 317 clients with an annual annual of US$1 million or more
  • 81% of customers use two or more Datadog products, up from 78% a year earlier. Additionally, 42% of customers use four or more products, up from 33% a year earlier
  • Datadog’s dollar-based retention rate exceeded 130% for the 22nd consecutive quarter, driven by the mission-oriented nature of the platform.

Fourth Quarter 2022 Earnings

The important financial figures

For the fourth quarter of 2022, the details of Datadog’s financial report are as follows:

  • Negative GAAP EPS of $0.09; Non-GAAP EPS of positive $0.26
  • Revenue was $469 million, up 43.8% year-over-year
  • Adjusted gross margin of 80.6%, up 30 basis points (bps) year over year
  • Operating loss of $34.6 million; operating margin negative 7%
  • Non-GAAP operating income was $83.1 million, compared to $70.6 million for the same period last year. Non-GAAP operating margin of 18%
  • R&D expenses increased 52.6% year-over-year to $142.4 million due to increased investment in the Datadog platform. R&D as a percentage of revenue increased 170 basis points to 30.3%.
  • Sales and marketing expenses increased by 65.1% year-on-year to US$125.3 million. Selling and marketing expenses as a percentage of revenue increased 340 basis points to 26.7%.
  • General and administrative expenses were $27.5 million, an increase of 24.4% year-on-year. G&A expenses as a percentage of revenue contracted 90 basis points to 5.9%.

Balance Sheet and Cash Flow

As of December 31, 2022, Datadog’s key cash flow numbers are as follows:

  • Operating cash flow of $114.4 million compared to $83.6 million in the third quarter
  • Free cash flow of $96.4 million compared to $67.1 million in the third quarter
  • Has cash, cash equivalents, restricted cash and marketable securities of $1.9 billion


Financial Forecast for Q1 2023

For the financial forecast for the first quarter of 2023, Datadog’s forecast:

  • Revenue between $466 million and $470 million
  • Non-GAAP EPS expected to be in the range of 22 to 24 cents per share
  • Non-GAAP operating income expected to be in the range of $68 million to $72 million

2023 Full Year Financial Forecast

Datadog expects full-year 2023 financial forecasts to be as follows:

  • Revenue between $2.07 billion and $2.09 billion
  • Non-GAAP EPS in the range of $1.02 to $1.09
  • GAAP revenue expected to be between $300 million and $320 million
  • Net interest and other income expected to be approximately $75 million due to higher interest rates

Market Valuation and Investor Focus

Business growth are bright spots in Q4 2022

Datadog was strongest in ARR (annual recurring revenue) bookings, a testament to the year-over-year increase in cross-sell sales.

As of January 2023, only 37% of Fortune 500 companies are Datadog customers. This means that there is a huge potential in terms of revenue from large customers; while smaller customers have also experienced high growth, which is a good sign of business development.

Datadog now has over 600 integrated vendors or products, including the latest offerings from AWS, GCP, and Azure. The company has launched services such as Observability Pipelines for customers to collect and change data from any source to any destination, audit trails for compliance and governance objectives, on-premises protection beta to stop threats directly internally, and many more similarly useful platforms .

Some notable deals completed in the fourth quarter of 2022 include a seven-figure dollar deal with a Fortune 500 financial services company, a seven-figure dollar deal with a major federal government agency, another deal with Japanese System Integrator’s business deals worth seven figures in US dollars. Plus a business expansion agreement with one of the world’s largest insurance companies.

Datadog is worth your watching

Digital transformation is underway as more and more businesses adopt cloud computing. In this sea change in cloud computing, it has never been more important to have control over customer-facing systems. In the simplest terms, if customers can’t connect, companies lose business, so keeping these systems up and running is critical.

That’s where cloud-based observability pioneer Datadog comes in. The company’s platform provides a single dashboard for monitoring the performance and security of infrastructure and cloud applications, notifying developers before problems become critical. Perhaps just as importantly, the anomalies detected by the system could be harbingers of future problems.

Datadog has been named a Leader in the 2022 Gartner Magic Quadrant for Application Monitoring and Observability for its ability to execute. The company was also identified as a leader in the Forrester report for delivering best-in-class artificial intelligence to IT operations and being adopted by clients for its data insights and visualization capabilities.

What should investors focus on?

The company’s current market capitalization is about $26 billion, and its share price has ranged from $61.34 to $167.89 over the past year. Even in economic headwind environment and bear market conditions, Datadog’s business performance is still very good, which is not easy.

In the fourth quarter, Datadog’s revenue rose 44% year-over-year to $469 million, while adjusted EPS of $0.26 was up 30%. While the company is not yet profitable under GAAP, it does generate cash flow from operations and free cash flow, so it may only be a matter of time before it becomes profitable, unlike many other young startups. the

Its customer metrics are equally notable, as Datadog’s most profitable customers are those generating $1 million in annual recurring revenue (ARR) — up 47% year-over-year, illustrating the mission-critical nature of its services. .

Plus, the company shouldn’t have a problem maintaining its growth trajectory. Datadog’s full-year 2022 revenue of $1.68 billion is a drop in the bucket compared to the company’s market opportunity, which management estimates will exceed $62 billion by 2026.

A Word About Valuations

Eagle-eyed investors will notice the similarities between Cloudflare (see my other blog post, “Cloudflare, a rising star in cloud computing infrastructure”) and Datadog, namely their high valuations. Neither stock is cheap when evaluated by traditional valuation metrics. Cloudflare and Datadog are currently trading at 13 and 10 times forward revenue forecasts, respectively, with a typical price-to-revenue ratio between 1 and 2. However, given their above-average growth rates in the face of various headwinds, their industry leadership, and significant remaining market opportunities, the market still pays them such a premium in a bear market.

credit: Datadog

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