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Datadog (DDOG) Q3 Earnings Rise Y/Y, Revenues Top Estimates

Datadog DDOG reported third-quarter 2020 non-GAAP earnings of 5 cents per share. The company had reported break-even earnings, on a non-GAAP basis, in the year-ago quarter.

The Zacks Consensus Estimate was pegged at a loss of 1 cent per share.

Net revenues of $154.7 million beat the consensus mark by 7.4% and increased 61.3% from the year-ago quarter.

Datadog, Inc. Price, Consensus and EPS Surprise

Datadog, Inc. price-consensus-eps-surprise-chart | Datadog, Inc. Quote

Quarter Details

Datadog’s revenue growth was driven by robust customer additions during the third quarter as well as continued growth of existing customers.

Notably, the company had 13,100 customers as of the end of the third quarter, up from 9500 in the year-ago quarter. Moreover, Datadog added 1000 customers in the quarter, up from 600 customers added in the previous quarter.
 
Of these customers, 1107 have an annual run rate (ARR) of $100K or more, up 52% year over year. These customers generate about 75% of total ARR.

During the quarter, Datadog’s dollar-based retention rate was above 130% for the 13th consecutive quarter, driven by increased usage of existing products.

Operating Details

In the third quarter, Datadog’s adjusted gross margin expanded 250 basis points (bps) on a year-over-year basis to 78.6%.

Research & development, as a percentage of revenues, expanded 170 bps to 29.6%, driven by increased investments in Datadog’s platform.

Sales and marketing expenses, as a percentage of revenues, contracted 670 bps to 32.1%. General & administrative expenses, as a percentage of revenues, contracted 70 bps to 7.9%.

Datadog reported non-GAAP operating income of $13.8 million. The company had reported a non-GAAP operating income of $0.7 million in the year-ago reported quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, Datadog had cash, cash equivalents and marketable securities of $1.49 billion million compared with $1.46 billion as of Jun 30, 2020.

Operating cash flow was $36.3 million in the reported quarter compared with $24.7 million in the previous quarter.

Free cash flow during the quarter was $28.6 million.

Guidance

For the fourth quarter of 2020, Datadog anticipates revenues between $162 million and $164 million. Non-GAAP earnings are expected between 1-2 cents per share.

Non-GAAP operating income is expected to be in the range of $3 million to $5 million.

For full-year 2020, Datadog anticipates revenues between $588 million and $590 million. Non-GAAP earnings is expected between 17-18 cents per share.

Non-GAAP operating income is expected to be in the range of $48.5 million to $50.5 million.

Zacks Rank & Stocks to Consider

Currently, Datadog carries a Zacks Rank #4 (Sell).

Himax Technologies HIMX, NVIDIA NVDA and Pure Storage PSTG are some better-ranked stocks in the broader computer and technology sector. Each carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Himax Technologies, NVIDIA and Pure Storage will report third-quarter 2020 results on Nov 12, Nov 18 and Nov 24, respectively.

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