Datadog Tanks 6% Despite Q1 Beat & Strong Outlook

Datadog, Inc. (NASDAQ: DDOG) delivered a blowout first-quarter results, significantly topping earnings and revenue estimates. Further, the company also raised its FY2022 guidance well above analyst expectations.

Despite the Q1 beat and raised guidance, shares of the monitoring and security platform for cloud applications lost 6% on May 5 to close at $111.87.

Q1 Beat

Quarterly earnings of $0.24 per share significantly exceeded analysts’ estimates of $0.11 per share and quadrupled year-over-year from $0.06 per share reported for the prior-year period.

Similarly, revenue climbed a whopping 83% to $363 million compared to the prior-year period and outpaced the Street’s estimate of $337.77 million.

The outstanding revenue growth is attributed to the robust growth of larger customers, with $100k+ annual recurring revenue (ARR) customers coming in at about 2,250, significantly higher than 1,406 a year ago.

Raised FY2022 Outlook

Based on robust Q1 results, management raised the financial guidance for FY2022 ahead of consensus estimates.

The company forecasts FY2022 adjusted earnings in the range of $0.70 to $0.77 per share, higher than the consensus estimate that is pegged at $0.52 per share and the prior guidance range of $0.45 to $0.51 per share.

Further, revenues are forecast to be in the range of $1.60 billion to $1.62 billion, superior to the consensus estimate of $1.53 billion and the previously guided range of 1.51 billion to $1.53 billion.

For the fiscal second quarter, adjusted earnings are likely to range between $0.13 and $0.15 per share while revenues are projected to be in the range of $376 million to $380 million.

CEO Comments

Datadog CEO, Olivier Pomel, commented, “By using our unified, cloud-native, end-to-end observability and security platform, our customers can understand, manage, and drive value from their exponentially growing and ephemeral cloud environments.”

Wall Street’s Take

Despite strong Q1 results, Mizuho Securities analyst Gregg Moskowitz decreased the price target on Datadog to $175 (56.4% upside potential) from $225 and reiterated a Buy rating.

Though Moskowitz lowered the price target due to the recent contraction in comp multiple, he stated, “While DDOG has a vast greenfield opportunity, we also continue to believe recent company momentum will presage greater customer consolidation activity on DDOG’s platform.”

The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 15 Buys, three Holds, and 1 Sell. At the time of writing, the average Datadog price target of $184.22 implies 64.67% upside potential to current levels.

Conclusion

Digital transformation is the need of the hour globally as companies across industries increasingly rely on software and cloud services to drive revenue growth and gain competitive advantage.

Yet another robust quarterly beat with solid revenue growth of 83% drove an increased outlook. Both reaffirm to investors of Datadog’s growth trajectory for years to come driven by most compelling trends in software.

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