7. Datadog, Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders as of Q4: 83
12 West Capital Management’s Equity Stake: $38.08 Million
Datadog, Inc. (NASDAQ:DDOG) is a U.S.-based company specializing in observability solutions for cloud-scale applications. Its SaaS-based platform enables comprehensive monitoring of servers, databases, tools, and services, providing businesses with real-time insights. The company reported fourth-quarter revenue of $738 million, surpassing analyst expectations, along with adjusted earnings per share of $0.49. However, the company revealed that it had 462 customers with an annualized revenue run rate exceeding $1 million, falling short of analyst estimates by approximately 25 customers.
For the first quarter of 2025, Datadog, Inc. (NASDAQ:DDOG) anticipates revenue between $737 million and $741 million, with adjusted earnings per share ranging from $0.41 to $0.43, compared to analyst projections of $740.58 million in revenue and $0.46 per share. Despite its strong quarterly performance, the company’s guidance for both the first quarter and the full year fell below expectations, leading to a 9% stock decline on February 13. The company’s full-year guidance forecasts revenue between approximately $3.18 billion and $3.20 billion, with EPS projected between $1.65 and $1.70, significantly below the consensus estimate of $2.04 per share. Despite these conservative projections, Datadog has maintained its strong position in the cloud monitoring and security sector, outperforming competitors such as New Relic, Dynatrace, and Splunk.
Datadog’s success is fueled by its diverse product suite and ongoing innovation. Of its 23 products, 15 have already surpassed $10 million in annual recurring revenue, including offerings in cloud security, CI Visibility, and Cloud Cost Management. The company’s expansion into MongoDB monitoring, covering major database platforms like Postgres, MySQL, SQL Server, and Oracle, further solidifies its role as a comprehensive cloud solution provider. As of September 30, 2024, Datadog, Inc. (NASDAQ:DDOG) held $3.2 billion in cash and marketable securities, maintaining a strong financial position. Its non-GAAP operating margin improved to 25% in Q3 2024, reflecting operational efficiency. Looking ahead, the company projects Q4 2024 revenue between $709 million and $713 million, with full-year revenue expectations of $2.656 billion to $2.660 billion, reinforcing its growth trajectory and market leadership.
The Brown Capital Management Small Company Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its Q3 2024 investor letter:
“Other examples of negative sentiment include portfolio companies that reported earnings that met or exceeded expectations, but only saw their share prices go up slightly, stay flat or even decline. For example, Datadog, Inc. (NASDAQ:DDOG) is a leading SaaS-based, information technology (IT)-monitoring and analytics software platform for developers, IT operations and business users. The platform automates the monitoring of infrastructure, applications databases, networks, logs and security. Datadog’s platform is differentiated by providing a unified view of these systems via a visual interface configured to the needs of each user (i.e., a single pane of glass). Datadog delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising 2024 full year revenue, operating income and earnings guidance. Despite these solid fundamental results, Datadog’s share price was down 11.8% in the third quarter. We speculate that these market reactions are evidence of the negative environment for high-growth companies. For more, please see the Detractors section below.
Datadog, mentioned above, automates the monitoring of infrastructure, applications databases, networks, logs and security. The company delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising guidance for 2024 full-year revenue, operating income and earnings. Datadog noted improving consumption and demand trends among its enterprise customers and stabilizing trends among its small and mid-sized customers. On its earnings call, Datadog management disputed that it has interest in large acquisitions, notwithstanding news articles on July 17 that Gitlab was seeking a buyer and Datadog is among the potential suitors. Despite solid fundamental results, Datadog’s share price underperformed in the third quarter of 2024. This may be due to its premium valuation and investor worries about Datadog’s ability to sustain its current strong revenue growth in a softer economic environment. We remain confident in Datadog’s ability to deliver durable growth over the long term. We believe Datadog has a massive and underpenetrated total addressable market that is growing about 10% annually. We also believe Datadog has a strong competitive positioning in infrastructure monitoring and is gaining market share.”
