Datadog, a prominent provider of IT monitoring software, witnessed a significant drop in stock value on Tuesday. The company’s cautious remarks about its immediate future, along with a slight adjustment to its full-year revenue forecast, sent shockwaves through the market. Unsurprisingly, this disappointment had a domino effect on other infrastructure software providers that primarily focus on cloud services.
As a provider of “observability” software, Datadog assists its customers in maintaining the well-being of their networks. The company operates on a consumption basis, meaning its revenue grows alongside increased usage. This aligns with the business model adopted by cloud computing giants like Amazon Web Services (AWS) and Microsoft Azure. Despite positive earnings from AWS last week that provided a glimmer of hope for Datadog and related stocks, recent evidence of cautious cloud customer spending has led to a reversal of those gains.
In response to these developments, the value of Datadog shares took a significant hit, falling by 19% to reach $86.16 during Tuesday’s trading session. The repercussions were also felt by other companies in the industry. MongoDB (MBD) experienced a 5% drop, Splunk (SPLK) saw a 3.4% decline, Confluent (CFLT) dipped 2.8%, and Dynatrace (DT) faced a 2.6% decrease. Adding to the list, Amazon.com (AMZN) suffered a 1.7% decline, settling at $139.82.
The outlook for Datadog and its counterparts appears uncertain, with investors now cautious about the future growth potential of cloud-focused infrastructure software providers. It remains to be seen how these companies will adapt and navigate the evolving market dynamics in an increasingly competitive landscape.
Strong June Quarter Results for Datadog
Revenue Growth and Exceeding Guidance Range
Datadog (ticker: DDOG) delivered solid results in the June quarter. The company reported a revenue of $509.5 million, marking a 25% increase compared to the same period last year. Impressively, this figure surpassed the company’s projected range of $498 million to $502 million. Additionally, adjusted operating income reached $106.5 million, well above the forecasted range of $82 million to $86 million. Adjusted earnings per share were equally impressive at 36 cents, exceeding the projected range of 27 to 29 cents. However, under generally accepted accounting principles, the company reported a loss of one cent per share.
Scrutiny on Costs and Optimization
During Datadog’s earnings conference call, CEO Olivier Pomel expressed caution regarding customer behavior. He stated that the company continues to witness customers, especially larger spenders, closely examining costs and finding ways to optimize their cloud and observability usage. CFO David Obstler noted that cloud-native businesses faced more pressure compared to traditional enterprise customers.
Outlook for the Third Quarter
For the upcoming third quarter, Datadog anticipates revenue in the range of $521 million to $525 million. Although this projection is slightly below the Street consensus of $534 million, it still reflects a positive outlook for the company. Moreover, Datadog expects non-GAAP operating income between $98 million and $102 million, with adjusted earnings per share ranging from 33 to 35 cents. These figures are ahead of the Street’s estimate of 29 cents.
Datadog’s strong performance in the June quarter and its optimistic outlook for the next quarter indicate its ability to navigate challenges in the market. As the company continues to adapt and evolve, it remains well-positioned for sustained growth.
Datadog Updates Full-Year Revenue Forecast
Datadog, a leading monitoring and analytics platform, has adjusted its full-year revenue forecast. The company now expects to see revenue between $2.05 billion and $2.06 billion, slightly lower than the previous target of $2.08 billion to $2.1 billion. However, Datadog has increased its forecast for non-GAAP operating income to a range of $390 million to $400 million, up from the previous range of $340 million to $360 million.
Moreover, the company’s projection for full-year non-GAAP earnings per share has also been revised upwards. It is now anticipated to be between $1.30 and $1.34 a share, compared to the previous range of $1.13 to $1.20 a share.
These adjustments reflect the dynamic nature of Datadog’s business and the company’s ongoing efforts to optimize its financial performance.