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    DDOG
    Earnings call· Dec 2024(Q4 FY24)

    Datadog, Inc. DDOG

    Feb 13, 2025 Source

    Executive summary

    Datadog Q4 FY24 — Record Bookings and Strong AI Native Customer Growth

    Datadog concluded FY24 with strong Q4 results, marked by record bookings and revenue exceeding guidance, driven by continued customer expansion and AI native adoption. The company's platform strategy continues to resonate, with increasing multi-product usage and a growing customer base, including a significant presence in the Fortune 500. Management plans continued investment in sales, marketing, and R&D for future growth, balancing long-term opportunities with financial discipline.

    Highlights

    5

    • Revenue reached $738 million, an increase of 25% year-over-year, exceeding the high end of guidance.

    • Achieved a new record with over $1 billion in bookings during Q4 FY24.

    • Total Annual Recurring Revenue (ARR) now exceeds $3 billion.

    • Generated free cash flow of $241 million, representing a 33% free cash flow margin.

    • AI native customers contributed 5 percentage points to year-over-year revenue growth in Q4 FY24.

    Concerns

    3

    • Non-GAAP operating margin declined to 24% in Q4 FY24, compared to 28% in the year-ago quarter.

    • Non-GAAP gross profit margin was 81.7% in Q4 FY24, down from 83.4% in the year-ago quarter.

    • Full fiscal year 2025 revenue guidance of $3.175 billion to $3.195 billion implies 18-19% year-over-year growth, a deceleration from Q4 FY24's 25% growth.

    Guidance & targets

    11
    CategoryTargetConfidence
    Revenue
    $737M to $741M
    high materiality
    High
    Non-GAAP operating income
    $162M to $166M
    medium materiality
    High
    Non-GAAP net income per share
    $0.41 to $0.43
    high materiality
    High
    Revenue
    $3.175B to $3.195B
    high materiality
    High
    Non-GAAP operating income
    $655M to $675M
    medium materiality
    High
    Non-GAAP net income per share
    $1.65 to $1.70
    high materiality
    High
    Net interest and other income
    approximately $120M
    low materiality
    High
    Non-GAAP tax rate
    21%
    low materiality
    High
    Cash taxes
    $30M to $35M
    low materiality
    High
    Capital expenditures and capitalized software
    4% to 5% of revenues
    medium materiality
    High
    Operating expense growth
    high 20s percent range
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Infrastructure monitoring
    Contributes over $1.25 billion in ARR.
    ARR: > $1.25B
    		————
    Log management
    Contributes over $750 million in ARR.
    ARR: > $750M
    		————
    End-to-end APM (Core APM, Continuous Profiler, Database Monitoring, Error Tracking, Synthetics, Real User Monitoring)
    Includes all products customers use to monitor applications, contributing over $750 million in ARR.
    ARR: > $750M
    		————
    Products outside 3 core pillars
    These products are increasing in customer usage and growth.
    ARR: > $200M
    		————

    Operational metrics

    33
    Non-GAAP gross margin
    81.7%vs 81.1% last quarter and 83.4% year-ago quarter
    Q4 FY24
    Non-GAAP operating margin
    24%vs 25% last quarter and 28% year-ago quarter
    Q4 FY24
    Cash and investments balance
    $4.2B
    Q4 FY24

    Cash, cash equivalents and marketable securities.

    Free cash flow margin
    33%
    Q4 FY24
    Revenue growth
    25%year-over-year
    Q4 FY24
    AI native customers as % of ARR
    ~6%roughly the same as last quarter and up from ~3% year-ago quarter
    Q4 FY24
    AI native customers contribution to revenue growth
    5 percentage pointsvs 4 points last quarter and ~3 points year-ago quarter
    Q4 FY24
    Customers using 2+ products
    83%about the same as last year
    Q4 FY24
    Customers using 4+ products
    50%up from 47% a year ago
    Q4 FY24
    Customers using 6+ products
    26%up from 22% a year ago
    Q4 FY24
    Customers using 8+ products
    12%up from 9% a year ago
    Q4 FY24
    Fortune 500 customers
    45%up from 42% in 2023
    Dec 2024
    Median Datadog ARR for Fortune 500 customers
    < $0.5M
    Q4 FY24

    Indicates large opportunity for growth with these customers.

    Total ARR
    > $3B
    Q4 FY24

    A significant milestone for the business.

    Infrastructure monitoring ARR
    > $1.25B
    Q4 FY24
    Log management ARR
    > $750M
    Q4 FY24
    End-to-end APM ARR
    > $750M
    Q4 FY24

    Includes Core APM, Continuous Profiler, Database Monitoring, Error Tracking, Synthetics, and Real User Monitoring.

    Products outside 3 pillars ARR
    > $200M
    Q4 FY24
    Features and capabilities released
    > 400
    FY24
    Integrations
    > 850
    Q4 FY24
    Customers using AI integrations
    ~3,500
    Q4 FY24

    Used 1 or more Datadog AI integrations to send data about machine learning, AI, and LLM usage.

    Customers using security products
    > 7,000
    Q4 FY24

    Used 1 or more security products.

    Operating expenses growth
    30%year-over-year
    Q4 FY24

    Accelerating from 21% last quarter.

    Sales and marketing expenses growth
    31%year-over-year
    Q4 FY24
    Sales and marketing expenses as % of revenues
    23%up from 22% in Q4 FY23
    Q4 FY24
    Sales and marketing headcount
    ~3,000up from ~2,400 at end 2023
    end 2024
    R&D expenses growth
    29%year-over-year
    Q4 FY24
    R&D expenses as % of revenues
    29%up from 28% in Q4 FY23
    Q4 FY24
    R&D headcount
    ~3,100up from ~2,400 at end 2023
    end 2024
    Total employees
    ~6,50027% year-over-year growth
    end 2024
    Convertible note issuance
    $1B
    Dec 2024
    Convertible note repurchase
    $142M
    Dec 2024

    Repurchased approximately 15% of outstanding 2025 convertible notes and terminated associated cap calls.

    Remaining 2025 convertible notes outstanding
    $636M
    Q4 FY24

    Principal amount, expected to be retired on or before maturity.

    Industry KPIs

    12
    MetricValueDetails
    Capacity CAPEX4% to 5%% of revenues
    Revenue growth$738MUSD
    Arr net new arr$3BUSD
    Rpo current rpo$2.27BUSD
    Bookings billings$1BUSD
    Customer account count30,000customers
    Large deal new logo metricshighest numbernew logos
    Gross retention renewal ratemid- to high 90s%
    Multi product platform attach83%%
    Operating FCF margin rule of 4024%%
    Ai product adoption monetization3,500customers
    Net revenue net dollar retentionhigh 110s%

    Orderbook & backlog

    5
    Bookings> $1BQ4 FY24

    record

    First ever quarter with over $1 billion in bookings.

    Remaining performance obligations (RPO)$2.27BQ4 FY24

    up 24% year-over-year

    Current RPO growthmid-20s percentQ4 FY24

    year-over-year

    RPO durationdownQ4 FY24

    year-over-year

    RPO growth (normalized for duration)mid-30sQ4 FY24

    year-over-year

    Product announcements

    27
    ProductTypeDetails
    Kubernetes autoscalinglaunch
    Datadog Monitoring for Oracle Cloud Infrastructure (OCI)launch
    OpenTelemetry interoperabilityupdate
    Bits AI for incident managementlaunch
    Bits AI for autonomous investigationsroadmap
    LLM observabilitylaunch
    Error Trackingupdate
    Data job monitoringlaunch
    Amazon SQS in data stream monitoringexpansion
    MongoDB in database monitoringexpansion
    Mobile app testinglaunch
    Mobile session replaylaunch
    Flex Logslaunch
    Log workspacesexpansion
    Observability pipelinesupdate
    Agentless scanninglaunch
    Datadog infrastructure as code securitylaunch
    Kubernetes security posture managementlaunch
    Code securitylaunch
    Software composition analysisexpansion
    Cloud SIEMexpansion
    Datadog code security with quality gateslaunch
    DORA metrics observationlaunch
    Datadog OnCalllaunch
    Event Managementlaunch
    Case management functionalitylaunch
    App builder productlaunch

    Deals & partnerships

    6
    Major U.S. financial institutionAdoption of Datadog Flex Logs and observability pipelines to save money on log management and invest in observability transformation.7-figure annualized deal

    This company was struggling with high costs and expansive logging tools. By using Datadog Flex Logs and observability pipelines, this customer expects to save money on log management, and will redeploy those savings to invest in observability transformation. This customer is starting with 4 Datadog products and is replacing 4 commercial and open-source tools.

    Large Brazilian retail companyImproved application performance and customer journey visibility for shopping application using Datadog.7-figure annualized deal

    This company had built a homegrown open-source based observability tool, but had poor visibility into customer journeys for their shopping application. With Datadog, they quickly improved application performance, which drove higher app store ratings, better digital reputation and improved user confidence. This customer is starting with 5 Datadog products.

    Leading American entertainment companyImproved visibility into customer experience on in-store kiosks and mobile app using Datadog's unified platform and product analytics.6-figure annualized deal

    This company had limited visibility into their customers' experience on in-store kiosks and on their mobile app. By using Datadog's unified platform, this company will correlate monitoring across front and back end and enable multiple teams to collaborate for improved customer experience. This landed deal featured our brand-new product analytics capabilities and will displace 2 commercial observability and analytics tools.

    U.S. federal health insurance companyAdoption of Flex Logs and Cloud SIEM within GovCloud for cost savings, improved security, and compliance for Medicare Services business.High 6-figure annualized deal

    This company's Medicare Services business requires a SIEM, but its SIEM tool was expensive and poorly adopted by the teams. They will now rely on both Flex Logs and our cloud team within GovCloud for significant cost savings, all that while improving security and compliance. And we have the opportunity to provide additional value and expand to 3 pillar end-to-end observability over time.

    Fortune 100 oil and gas companyExpansion to monitor thousands of hosts moving from on-prem to the cloud, replacing legacy infrastructure and network monitoring tools.7-figure annualized expansion

    This customer is moving thousands of hosts from on-prem to the cloud and will replace 2 legacy infrastructure and network monitoring tools. The estimated cost and productivity savings from operating these legacy tools exceed $1 million annually. And we work with them to evaluate the productivity gains when thousands of users saw less disruption by incidents for expected savings of over $10 million per year. This customer is expanding to use 14 Datadog products.

    Leading security software companyExpansion to Flex Logs, replacing a homegrown open-source log management tool.7-figure annualized expansion

    This customer built a homegrown log management tool using open source software, but it was time consuming to maintain extremely costly and performed poorly with unacceptable delays. By moving to Flex Logs, this customer is already saving on total cost, reducing mean time to resolution and increasing user productivity with estimated savings over $1 million a year. And this customer is expanding to use 8 Datadog products.

    Risks & headwinds

    3
    Customer optimization and volume discountsQ4 FY24

    Optimization and volume discounts related to contract renewals in Q4.

    Mitigation: Management expects continued long-term volume growth from this cohort, but acknowledges potential volatility as customers renew on different terms and optimize usage.

    Revenue growth volatilityOngoing

    Potential volatility in revenue growth on the backdrop of long-term volume growth.

    Mitigation: Customers may choose to optimize cloud and observability usage, leading to fluctuations in revenue growth.

    Slower sales capacity growth in H1 2024H1 FY24

    A bit of a slower start last year in the first half of the year at growing sales capacity than we would have wanted.

    Mitigation: Accelerated sales capacity growth throughout H2 2024 and continuing into 2025, with expected impact in 1-2 years.

    What to watch in Q1 FY25

    5

    FY25 Revenue Growth

    FY25
    Current25% YoY (Q4 FY24)
    Target18-19% YoY

    Why it matters

    To assess if the projected deceleration in revenue growth for FY25 materializes as guided or if underlying trends improve.

    And for the full fiscal year 2025, we expect revenues to be in the range of $3.175 billion to $3.195 billion, which represents 18% to 19% year-over-year growth.

    Q&A highlights

    6

    How are AI native customer commitments evolving, especially with renewals and potential for large customers to in-house observability?

    Olivier Pomel explained that AI cohort renewals involved higher commits, better terms, and optimization, playing out as expected. He noted that in-housing observability is typically not economically rational for most companies due to scale, talent, and engineering bandwidth constraints, making it a niche concern for only the largest tech companies.

    “Typically, what we see is it's more of a cultural choice because it's not economically rational unless you have a combination of tremendous scale, exceptional access to talent. And you also don't have a growth that is limited by the engineering bandwidth you have for innovation work this quarter to your business.”

    asked by Mark Murphy · answered by Olivier Pomel

    2 min read6 chapters

    Detailed Narrative

    01

    Platform Strategy and Customer Adoption

    Datadog's platform approach continues to drive customer expansion, with 83% of customers using 2 or more products, 50% using 4 or more, 26% using 6 or more, and 12% using 8 or more. The company now serves 45% of the Fortune 500, up from 42% in 2023, with significant growth potential as the median ARR for these customers is still less than $0.5 million. This indicates a large opportunity to grow within existing large enterprise accounts.

    02

    Product Pillar Milestones

    Datadog's total Annual Recurring Revenue (ARR) now exceeds $3 billion. Infrastructure monitoring contributes over $1.25 billion in ARR. Log management and end-to-end APM products (including Core APM, Continuous Profiler, Database Monitoring, Error Tracking, Synthetics, and Real User Monitoring) each exceed $750 million in ARR. Products outside these three core pillars now contribute over $200 million in ARR, highlighting diversification and new growth avenues.

    03

    Q4 Business Drivers and Bookings

    Usage growth from existing customers in Q4 was roughly similar to the year-ago quarter, indicating a stable business environment where customers are growing cloud usage while remaining cost-conscious. Datadog achieved a new record with over $1 billion in bookings, signaling strong future growth potential, though this does not immediately translate into revenue. Gross revenue retention remained stable in the mid-to-high 90s, underscoring the mission-critical nature of the platform.

    04

    R&D Innovation and AI Focus

    In 2024, Datadog released over 400 new features and capabilities, including Kubernetes autoscaling, Oracle Cloud Infrastructure (OCI) monitoring, and enhanced OpenTelemetry interoperability. The company made significant investments in AI, launching LLM observability in general availability and previewing Bits AI for incident management and autonomous investigations. By the end of Q4, approximately 3,500 customers were using one or more Datadog AI integrations.

    05

    Sales and Marketing Success

    Q4 saw strong sales performance with record bookings and notable new logos and expansions. Key wins included 7-figure annualized deals with a major U.S. financial institution (adopting Flex Logs and 4 products), a large Brazilian retail company (5 products), and a Fortune 100 oil and gas company (expanding to 14 products). Flex Logs and Cloud SIEM were highlighted in several deals, displacing legacy and open-source tools, demonstrating competitive strength.

    06

    Investment for Future Growth

    Datadog successfully executed its hiring plans in 2024, growing its employee base by 27% to approximately 6,500. The company intends to continue significant investments in sales and marketing (expanding into less mature geographies, channel partnerships, and larger enterprises) and R&D (expanding product capabilities and platform features) in 2025. This strategy is expected to result in operating expense growth in the high 20s percent range year-over-year.

    AI-generated summary of the company’s earnings call. Not investment advice.