Datadog Faces Challenges Amid 19% Stock Decline and Outlook

Datadog's stocks are down 19% as it issued a disappointing 2025 outlook. The company's slow revenue growth and higher expenses may weigh on future performance, but long-term investments could present a buying opportunity.

Date: 23-02-2025

AI Rating: 4

Key Performance Indicators Affecting Stock Prices

Datadog has experienced a significant decline of 19% in its share price after announcing a weaker-than-expected outlook for 2025. The primary causes for concern include slower revenue growth, which was forecasted at 18% to 19%, and a decline in operating margin guidance to 21%, below the expected 25%.

The company's revenue shows a recent climb of 25% to $738 million, indicating overall business health, yet the expectations for future revenue growth and profitability metrics like operating margins cast variability in future stock performance. The anticipated increase in expenditures for expanding market presence could also intensify the pressure on profit margins.

Further, the Adjusted EPS for the last reported quarter is $0.49, an 11% increase from $0.44 a year ago, showcasing some positive earnings performance which may act to mitigate investor fear to a degree. Furthermore, free cash flow (FCF) generation of $241 million for the quarter and $775 million for the year adds to the liquidity health of the company, which is crucial during periods of elevated investment and operational expansion.

Despite the setbacks, Datadog's net dollar-based retention remains high at the 110% range, reflecting that existing customers are increasing their spending, which is vital for long-term growth. The company has also been successful in securing new clients, adding 800 in the last year and a half, particularly in a challenging spending environment.

The company's focus on AI and cloud security presents potential future opportunities, but current guidance below expectations has led to stock fears. Therefore, while the operational metrics offer some hope, the lowered growth and profitability outlooks will likely pressure the stock in the near term.

Stocks: DDOG