Q4 2024 Summary
Published Feb 13, 2025, 4:34 PM UTC- Strong Demand for New Products Like Flex Logs and OnCall: Datadog is experiencing significant customer interest in new products such as Flex Logs and OnCall. The company sees potential for increased adoption in the market, especially with competitive openings due to larger players being acquired. This strong demand positions Datadog for future revenue growth as these products gain traction.
- Increased Investment in Sales, Marketing, and R&D Indicative of Confidence in Growth Opportunities: Datadog is accelerating investments in sales capacity, marketing, and research and development based on evidence of demand and success. The company is expanding into underserved geographies, developing channel partnerships, and targeting large enterprise customers. These investments are expected to drive growth over the next few years.
- Significant Growth from AI-Native Customers and Broader AI Adoption: AI-native customers contributed approximately 5 percentage points of year-over-year revenue growth in Q4, up from 4 points in the previous quarter. Even with some optimization at renewals, the AI cohort's revenue remained stable quarter-over-quarter and grew significantly from the previous year. As AI adoption spreads beyond native companies, Datadog anticipates substantial growth opportunities from the broader market embracing AI workloads.
- Risk of AI-native Customers In-housing Observability Solutions: Some of Datadog's largest AI-native customers may choose to develop their own observability and monitoring tools internally, reducing their dependence on Datadog. As Olivier Pomel noted, "there is always customers that want to in-house their observability or monitoring."
- Uncertainty in Converting Bookings to Revenue: There is a potential disconnect between strong bookings and actual revenue growth because Datadog's revenue is based on customer usage, which may lag behind bookings. Olivier Pomel stated, "the revenue comes on usage and usage is only loosely related to in time to the bookings we get from the sales team."
- Limited Monetization of AI Training Workloads: Datadog may not fully benefit from the growth in AI workloads, particularly AI training, which is a significant driver for cloud providers. Olivier Pomel mentioned that they are "not monetizing very well... because those GPUs are largely attached to training workloads that we don't have a big role in."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +25% (from $589.65M in Q4 2023 to $737.68M in Q4 2024) | Strong revenue growth continued from robust adoption by both existing and new customers—similar to trends noted in previous quarters—and expanded geographic reach. This momentum even exceeded previous growth drivers, reflecting deeper platform adoption and efficient customer acquisition strategies. |
International Revenue | +24% (from $180.5M in Q4 2023 to $223.77M in Q4 2024) | Growth in international markets was driven by expanded market penetration and increased product adoption across regions, following earlier patterns of steady global performance seen in prior periods. |
Operating Income | –66% (from $27.74M in Q4 2023 to $9.39M in Q4 2024) | Despite higher revenue, operating income declined dramatically likely due to disproportionate increases in operating expenses (e.g., higher R&D, S&M, and G&A costs) that outpaced cost efficiencies compared to previous periods where margin improvements were noted. |
Net Income | –15% (from $53.99M in Q4 2023 to $45.59M in Q4 2024) | The decline in net income reflects the impact of lower operating income combined with cost pressures and possible shifts in non-operating income elements, even as revenue growth remained robust—continuing a trend of tighter profitability margins relative to prior periods. |
EPS – Basic/Diluted | –23% (from $0.17 in Q4 2023 to $0.13 in Q4 2024) | EPS fell significantly as a direct consequence of the net income drop, with modest changes in the weighted average share count having little mitigating effect on earnings per share, mirroring the overall lower margin performance seen in operating and net income. |
Net Change in Cash | Significant increase (from $69.03M in Q4 2023 to $909.57M in Q4 2024) | A dramatic improvement in cash position was achieved—primarily driven by strong operating cash flow and favorable financing/investing activities (such as large inflows from maturities and stock option exercises) that reversed the trend seen in the prior period, reflecting enhanced liquidity management. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q1 2025 | no prior guidance | $737 million to $741 million (21% year-over-year growth) | no prior guidance |
Non-GAAP Operating Income | Q1 2025 | no prior guidance | $162 million to $166 million (22% operating margin) | no prior guidance |
Non-GAAP Net Income Per Share | Q1 2025 | no prior guidance | $0.41 to $0.43 (based on approximately 366 million weighted average diluted shares outstanding) | no prior guidance |
Revenue | FY 2025 | no prior guidance | $3.75 billion to $3.195 billion (18% to 19% year-over-year growth) | no prior guidance |
Non-GAAP Operating Income | FY 2025 | no prior guidance | $655 million to $675 million (21% operating margin) | no prior guidance |
Non-GAAP Net Income Per Share | FY 2025 | no prior guidance | $1.65 to $1.70 (based on approximately 369 million weighted average diluted shares outstanding) | no prior guidance |
Net Interest and Other Income | FY 2025 | no prior guidance | Approximately $120 million | no prior guidance |
Non-GAAP Tax Rate | FY 2025 | no prior guidance | 21% | no prior guidance |
Cash Taxes | FY 2025 | no prior guidance | Expected to be about 1% of 2025 revenues or approximately $30 million to $35 million | no prior guidance |
Capital Expenditures and Capitalized Software | FY 2025 | no prior guidance | Expected to be 4% to 5% of revenues | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $709 million to $713 million | $737.727 million | Beat |
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AI Native Customers and Record Bookings
Q: How are AI native customers impacting business?
A: The company saw record bookings in Q4 , with AI native customers contributing significantly. Renewals included higher commitments and better terms, even as customers optimized usage. The AI cohort's revenue remained stable quarter-to-quarter and grew sharply from the year before. Management views these customers as a sign of broader AI adoption. -
Sales Capacity Investments
Q: What drives confidence in increasing sales investments?
A: Evidence of demand across geographies and customer types is driving increased investment. The company is investing in underserved regions, channel partnerships, and enterprise opportunities based on successful results. They are growing sales capacity, expecting impacts in 1 to 2 years. -
Disparity Between Indicators and Guidance
Q: Why is guidance conservative despite strong indicators?
A: Management explained that revenue comes from usage, which is only loosely related in time to bookings. Their guidance is based on recent usage trends, extrapolated with some discount, and does not incorporate longer-term gains from scaling go-to-market efforts. They remain disciplined in sticking to usage trends. -
Net Retention Rate (NRR) Outlook
Q: What is expected for NRR in the outlook?
A: NRR has been ticking up. Management uses net retention and new customer contributions in revenue guidance, applying conservatism and not assuming acceleration from AI. -
Impact of Hyperscaler Slowdown and AI Constraints
Q: Are AI capacity constraints affecting Datadog?
A: It's hard to tell the impact of AI capacity constraints. Datadog is growing faster than cloud providers, even without significantly monetizing AI-related GPU sales. They are outpacing the non-AI growth of cloud providers, driven by digital transformation and cloud adoption. -
FlexLogs Success and Competitor Displacement
Q: How is FlexLogs performing against competitors?
A: FlexLogs is experiencing significant success, especially in migrations from competitors. The company is pushing this product due to opportunities created by competitors being acquired recently. They see opportunities in both logs and security use cases, often starting with operational logs before expanding. -
Infrastructure Monitoring Growth Potential
Q: Can infrastructure monitoring growth accelerate?
A: Opportunities exist to expand into areas like GPU management and large IoT fleets. There's potential in network monitoring as well. Despite being a leader, they have less than half of Fortune 500 customers, indicating room for growth. -
Observability of AI Inference Workloads
Q: What's the opportunity in AI inference observability?
A: Customers mainly use third-party models and focus on measuring performance. Datadog's LLM observability product meets this need. Few customers fully operate the inference stack now, but management expects this to grow. -
Organizational Efficiency and Headcount
Q: Will efficiency gains reduce headcount needs?
A: Management considers the organization already highly efficient. Productivity gains are reinvested in R&D and go-to-market efforts to drive growth rather than reducing headcount. In the short to mid-term, they plan to continue investing in these areas. -
Internal AI Improvements
Q: How is Datadog improving internally with AI?
A: AI is transforming many areas within Datadog, starting with software development. They see productivity improvements in engineering, customer onboarding, and issue troubleshooting. They expect improvements across front office and back office operations.