Datadog (DDOG 0.36%)a provider of cloud-based monitoring services, disclosed notable achievements in its third quarter earnings report on November 7, 2024. The company reported a 26% year-over-year increase in revenue totaling $690 million, beating management’s expectations of $660. million to $664 million. Non-GAAP net income per share also outperformed at $0.46, topping the consensus estimate of $0.38 to $0.40. Despite competitive pressures, Datadog delivered a solid quarter, marked by strong operating flows and free cash.

Source: Expectations based on management guidance as provided in the 2024-08-08 earnings report.

Datadog Business Overview

Datadog is a leading provider of IT security and monitoring services, known for its complexity SaaS platform. This platform combines various monitoring tools into a single solution, covering areas such as infrastructure monitoring and application performance. The company continued to focus on enhancing its integrated platform, which provides extended visibility into user environments, essential for customers navigating complex cloud configurations.

Lately, Datadog has turned its efforts to expanding its security and developer-oriented products. Key to its success is the land-and-expand business model, which focuses on deeply integrating Datadog’s products into customers’ operations and gradually expanding the amount of services they use. This not only increases customer loyalty, but also facilitates more cross-selling opportunities.

Quarterly outlook

During the third quarter, Datadog demonstrated strong financial and operational performance. An important point was the substantial increase in revenue, reaching $690 million, which exceeded the expected range. This success reflects the company’s sustained market traction and effective sales execution. Non-GAAP operating income of $173 million beat the estimate range of $146 million to $150 million.

The quarter also highlighted product development, with Datadog expanding its observability and security capabilities. The company has introduced integration features for Oracle Cloud infrastructure, further improving its support for multi-cloud environments. Its customer base saw growth, with larger enterprise accounts growing 12% year-over-year as companies continued to rely on Datadog’s full-stack monitoring solutions.

Operations marked a notable increase in free cash flow to $204 million from $138 million. This improvement underscores Datadog’s financial stability and reflects higher cash conversion due to effective cost controls and increased operating cash flow of $229 million.

However, challenges were also noted. Pressure on gross margins persisted, partly due to substantial investments in new product capabilities.

Future prospects

Looking ahead, Datadog maintains an optimistic but cautious outlook for the fourth quarter. The company expects revenue to be between $709 million and $713 million, with non-GAAP earnings per share expected to be between $0.42 and $0.44.

With its comprehensive platform and strategic expansion into the security and AI markets, Datadog is positioned to capture additional market share. Investors should monitor external market conditions and competitive dynamics as these factors could impact Datadog’s ability to sustain growth. Datadog maintained its full-year revenue guidance of $2.656 billion to $2.660 billion.