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01/10 05:58
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Datadog's earnings call presents a positive outlook with strong revenue growth, robust free cash flow, and high customer retention rates. Despite a slight decline in margins, the company is investing in AI and data observability, indicating future growth potential. The Q&A session highlighted confidence in strategic investments and cloud migration trends. The raised guidance, despite the margin fluctuations, suggests optimism about future performance. Overall, the positive sentiment outweighs concerns, predicting a stock price increase in the next two weeks.
Revenue $762 million, an increase of 25% year-over-year. This growth was driven by strong usage growth from existing customers and a significant contribution from AI native customers, which represented about 8.5% of Q1 ARR, up from about 6% last quarter.
Free Cash Flow $244 million, with a free cash flow margin of 32%. This reflects strong operational performance and effective cost management.
Gross Profit $612 million, with a gross margin of 80.3%. This is a decrease from 81.7% last quarter and 83.3% in the year-ago quarter, primarily due to rising cloud hosting costs and investments in new products.
Operating Income $167 million, resulting in a 22% operating margin, down from 24% last quarter and 27% in the year-ago quarter, attributed to increased operational expenses.
Billings $748 million, up 21% year-over-year, indicating strong demand and customer acquisition.
Remaining Performance Obligations (RPO) $2.31 billion, up 33% year-over-year, reflecting strong future revenue visibility.
Net Revenue Retention In the high 110%’s, stable compared to last quarter, indicating strong customer retention and expansion.
Gross Revenue Retention Stable in the mid to high-90s, highlighting the critical nature of Datadog's platform for customers.
Operating Expenses (OpEx) Grew 29% year-over-year, consistent with previous quarters, as Datadog continues to invest in growth and innovation.
R&D Expense as a Percent of Sales 30% in Q1, reflecting the company's commitment to innovation and product development.
Flex Logs: Flex Logs is off to a fast start and now exceeds $50 million in ARR, achieving this milestone in six quarters.
Database Monitoring: Database Monitoring product is approaching the $50 million ARR level and is growing 60% year-over-year.
New Data Center in Australia: Plans to launch a new data center in Australia to serve local customers and meet data residency, privacy, and security requirements.
Customer Growth: Ended Q1 with about 30,500 customers, up from about 28,000 a year ago.
Free Cash Flow: Generated free cash flow of $244 million, with a free cash flow margin of 32%.
Customer Product Adoption: 83% of customers were using two or more products, up from 82% a year ago.
Churn Rate: Churn has remained low with gross revenue retention stable in the mid to high-90s.
Acquisitions: Acquired Eppo, a feature management platform, and Metaplane, a data observability platform.
AI Initiatives: Continued investment in AI observability and analysis, with over 4,000 customers using Datadog AI integrations.
Competitive Pressures: Datadog faces competitive pressures from other observability and monitoring platforms, which may impact customer acquisition and retention.
Regulatory Issues: The company is mindful of regulatory compliance, especially with the launch of new data centers, which must meet local data residency, privacy, and security requirements.
Supply Chain Challenges: Rising cloud hosting costs due to increased demand from large customers have put pressure on gross margins, indicating potential supply chain challenges.
Economic Factors: The company acknowledges cross currents impacting the global economy, which could lead to volatility in revenue growth, particularly among AI native customers.
Investment Risks: Increased operational expenditures due to hiring and R&D investments may affect short-term profitability, despite being aimed at long-term growth.
Acquisition Integration Risks: Recent acquisitions (Eppo and Metaplane) may present integration challenges and require effective management to realize their full potential.
Revenue Growth: Q1 revenue was $762 million, an increase of 25% year-over-year.
Customer Growth: Ended Q1 with about 30,500 customers, up from about 28,000 a year ago.
Product Adoption: 83% of customers were using two or more products, up from 82% a year ago.
New Product Launches: Flex Logs exceeded $50 million in ARR, and Database Monitoring is approaching $50 million in ARR.
Acquisitions: Acquired Eppo and Metaplane to enhance product offerings in feature management and data observability.
AI Initiatives: Over 4,000 customers used one or more Datadog AI integrations, doubling year-over-year.
Q2 Revenue Guidance: Expected revenue in the range of $787 million to $791 million, representing 22% to 23% year-over-year growth.
FY 2025 Revenue Guidance: Expected revenue in the range of $3.215 billion to $3.235 billion, representing a growth rate of 20% to 21%.
Operating Income Guidance: Non-GAAP operating income expected to be in the range of $625 million to $645 million for FY 2025.
Net Income Guidance: Non-GAAP net income per share expected to be in the range of $1.67 to $1.71 for FY 2025.
CapEx Guidance: Expected capital expenditures and capitalized software together to be in the 4% to 5% of revenue range for the year.
Free Cash Flow: Generated free cash flow of $244 million, with a free cash flow margin of 32%.
Revenue Guidance: For the second quarter, expected revenue to be in the range of $787 million to $791 million, representing 22% to 23% year-over-year growth.
Operating Income Guidance: Non-GAAP operating income expected to be in the range of $625 million to $645 million for fiscal year 2025.
Share Count Reduction: Weighted average diluted share count expected to decline sequentially as shares related to the 2025 convertible note will be removed upon redemption.
Convertible Notes: Remaining approximately $635 million principal of 2025 convertible notes will mature in June, expected to be redeemed mainly in cash.
The earnings call summary indicates strong financial performance with 23% YoY growth, stable operating margins, and promising guidance. Product development and AI integration are progressing well, with positive market strategies and security growth. The Q&A session reinforced optimism in AI adoption and product innovation. Despite some uncertainties in net retention rates, the overall sentiment is positive. The lack of market cap data limits precise prediction, but given the strong performance and guidance, the stock price is likely to see a positive movement in the next two weeks.
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