Shares of Datadog Inc. jumped more than 29% today after it posted third-quarter results that handily topped the consensus analyst estimate.
The company also raised its full-year guidance, which was likely another contributor to its stock market gains. Datadog now expects to close fiscal 2023 with revenues of between $2.103 billion and $2.107 billion, up from the $2.05 billion to $2.06 billion it projected last quarter. Analysts were expecting the company’s sales guidance to fall within last quarter’s range.
New York-based Datadog sells an observability platform that enterprises use to monitor their infrastructure for technical issues. The company also provides tools for other information technology tasks, such as finding application vulnerabilities. Strong product demand lifted Datadog’s sales 25% year-over-year in the third quarter to $548 million, putting it comfortably above the $524.1 million consensus estimate.
The company generates most of its revenue from deals with large organizations. The number of customers that spend more than $100,000 per year on Datadog’s software rose 20%, to about 3,130, in the third quarter. The company had approximately 2,600 such customers the same time a year earlier.
Datadog’s topped revenue expectations last quarter as well. The company’s strong revenue growth is partly the fruit of a product development strategy that has seen it expand into multiple new markets over the past few years. Datadog, which originally focused solely on observability, now also provides tools for securing cloud infrastructure, optimizing application usability and speeding up software development projects.
One of the newest additions to Datadog’s product portfolio, a tool called Intelligent Test Runner, became generally available in August. Software teams run automated assessments to check new code for errors before rolling it to production. Intelligent Test Runner reduces the number of automated assessments that developers have to run, which allows code to be deployed sooner and reduces costs.
Besides supporting its expansion into new markets, Datadog’s product strategy also focuses on making its existing offerings more useful. Intelligent Test Runner made its debut the same day the software maker debuted a tool called Security Inbox. It aggregates the data that Datadog’s cybersecurity products collect about vulnerabilities and other risks in a centralized interface.
The increased demand the company logged across its product portfolio in the third quarter had a positive effect on its earnings. Datadog generated an adjusted operating income of $130.8 million in the three months ended Sept. 30, nearly double the $74.8 million it posted a year earlier. The company’s adjusted earnings of 45 cents per share easily topped the consensus analyst estimate, which forecasted 34 cents.
“We were pleased with our execution in the third quarter, with 25% year-over-year revenue growth, robust new logo bookings, and a continued focus on solving our customers’ DevSecOps pain points,” said Datadog co-founder and Chief Executive Officer Olivier Pomel.
For the current quarter, Datadog is projecting sales of between $564 million and $568 million. Analysts polled by LSEG were anticipating $543.3 million. Datadog expects to close the quarter with an adjusted operating income of $129 million to $133 million.
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