To The Moon

$Datadog(DDOG)$ is scheduled to release the fourth-quarter 2024 results on 13 Feb before the market opens.

DDOG is anticipating DDOG to report revenues between $709 million and $713 million. The earnings per share consensus estimate is expected at $0.43 with revenue looking to come in around $711.65 million, suggesting 20.69% growth from the same period last year.

Datadog (DDOG) Last Positive Earnings Call Give 13.30% Change Since

We saw DDOG have gathered a 13.30% change since the last positive earnings call on 07 Nov 2024, the earnings call reflected a generally positive sentiment with strong revenue growth, increased customer base, and significant progress in AI-related offerings.

However, concerns about RPO growth deceleration and potential volatility from AI customers were noted.

Datadog (DDOG) Guidance Looking For Growth Rate Around 20%

In the Q3 2024 earnings call, Datadog provided guidance indicating expected revenue for Q4 to be between $709 million and $713 million, reflecting a year-over-year growth rate of 20% to 21%. For the full fiscal year 2024, revenue is anticipated to be in the range of $2.656 billion to $2.660 billion, representing 25% growth year-over-year.

The company expects non-GAAP operating income for Q4 to range from $163 million to $167 million, implying an operating margin of 23%, and for the full year, operating income is projected between $658 million and $662 million, with an operating margin of 25%. Non-GAAP net income per share for Q4 is projected to be $0.42 to $0.44, based on approximately 361 million weighted average diluted shares, and $1.75 to $1.77 for the fiscal year, based on around 359 million shares.

Datadog also anticipates net interest and other income for 2024 to be approximately $140 million, with cash taxes expected to be between $20 million and $25 million. Capital expenditures and capitalized software are projected to be 3% to 4% of revenue for the fiscal year.

One area to look at is DDOG earnings coming from increasing annual run rate (ARR), because this is important for a company who are running on SaaS mode.

Datadog (DDOG) Customer Growth And Stronger ARR To Watch

In the third-quarter, we saw DDOG revenue reached $690 million, representing a 26% increase year-over-year and exceeding the high end of the guidance range. This is on top of the impressive customer metrics which should continue into the four-quarter.

Customer Expansion To Give Stronger ARR

DDOG has 3,490 customers with an annual run rate (ARR) of $100,000 or more, which increased 12% year over year. In the third quarter, DDOG ended the quarter with approximately 29,200 customers, up from about 26,800 a year ago. Customers with ARR over $100,000 increased to 3,490, generating 88% of ARR.

83% of customers used two or more products, up from 82% in the year-ago quarter. Additionally, 49% of customers utilized four or more products, up from 46% in the year-ago quarter, highlighting Datadog's success in attracting and retaining enterprise-level customers.

High Free Cash Flow

Datadog generated free cash flow of $204 million, with a free cash flow margin of 30%. I am expected DDOG to continue generating higher free cash flow.

Higher Q4 ARR Coming From Native Customer Due To AI Integration Growth

AI native customers contributed to over 6% of Q3 ARR, up from 4% in Q2 and 2.5% a year ago, indicating rapid growth in AI-related revenue.

We could be seeing Q4 ARR to increase from the native customer due to DDOG multi-cloud and multi-vendor approach allows customers to monitor their entire cloud infrastructure from a single platform, this would be more significant now that enterprise are looking to optimize performance, troubleshoot issues and maintain robust security across diverse cloud environments, not sticking to any cloud providers.

Sales Order Expected To Increase Federal and Enterprise Deals

In the third-quarter, Signed 7-figure annualized deals with a leading e-commerce company in India, a major U.S. Federal Agency, and other large enterprises, demonstrating strong sales execution. We could be seeing more deals coming as DDOG significant investments in sales and marketing to engage customers, increase brand awareness and drive adoption of its platform and products are expected to have weighed on profit margins in the to-be-reported quarter.

Challenges From Other Providers Including HyperScalers

We also need to understand and acknowledge that DDOG is running their business in a competitive observability and monitoring market. Their closest rivals like $Dynatrace Holdings LLC(DT)$ and $Splunk(SPLK)$ .

These competitors offer robust solutions and have strong customer bases established over time, but DOG effort to win them over with unified platform and multi-cloud integrations might be key.

And DDOG also faced competitions from major cloud providers who are also offering monitoring tools, $Amazon.com(AMZN)$ have quite a comprehensive tool but can it really do the same jobs for AI deployment, we will need to see.

Datadog (DDOG) Price Target

Based on 25 Wall Street analysts offering 12 month price targets for Datadog in the last 3 months. The average price target is $166.47 with a high forecast of $200.00 and a low forecast of $140.00. The average price target represents a 14.48% change from the last price of $145.42.

I think DDOG could be moving towards the $160 if we have another strong or stronger earnings for the fourth-quarter, we will need to see what the ARR number looks like.

Technical Analysis - Exponential Moving Average (EMA)

If we looked at how DDOG have been trading, it is not very strong, we are seeing that DDOG is trying to break out into an uptrend but have not been successful.

The bulls are defending the price level well above the 26-EMA, but we could see a downtrend if DDOG does give some challenges on future orders for its services and products.

If the earnings come in strong with ARR increase to record highs, we could see DDOG breaking with a surge around 6-8% post earnings.

Summary

I think DDOG would be able to benefit from the enterprise digital transformation which are now incorporating AI deployment, and monitoring across multi-cloud environment have always be something that enterprise look for.

So one stop platform like DDOG might be something for the operations team to look at so that they can save considerable man-hours to monitor their cloud infrastructure, especially when enterprise roll out AI solutions.

I will be looking to see if there is an opportunity to capture today (12 Feb).

Appreciate if you could share your thoughts in the comment section whether you think DDOG could provide an earning surprise due to a stronger ARR (annual run rate).

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.