Datadog (DDOG, Financial) reported impressive first-quarter 2025 results, exceeding both EPS and revenue predictions, consistent with its history of outperforming analysts' forecasts for over five years. This success was fueled by significant usage growth among existing customers, particularly large accounts with $100K+ in annual recurring revenue (ARR), and the continued adoption of its multi-product platform.
For the second quarter and full-year 2025, DDOG's guidance was mixed. The midpoint of the EPS range was slightly below expectations, while revenue forecasts were above estimates. The company is focusing on growth and innovation, leading to elevated R&D spending (+27% in Q1) and increased Sales and Marketing expenses (+21% in Q1) due to customer acquisition efforts. Additionally, some enterprises are optimizing cloud workloads amid economic uncertainty, affecting operating leverage and EPS.
- DDOG saw a 13% increase in large customers ($100K+ in ARR), reaching 3,770 and making up 87% of total ARR, despite being only 12% of the 28,700 total customer base. This growth is driven by increased cloud adoption and demand for observability and security products, especially among enterprises undergoing digital transformations. The company's land-and-expand strategy is effective, with a strong dollar-based net retention rate of 115%, indicating robust expansion within existing accounts.
- Similar to competitors Snowflake (SNOW, Financial) and MongoDB (MDB, Financial), DDOG benefits from trends like cloud migration, digital transformation, and rising AI adoption, which boost demand for monitoring and data analytics platforms. Like SNOW, DDOG's usage-based business model, charging based on the volume of hosts, containers, or data processed, was advantageous in Q1. This model's flexibility allowed DDOG to capture additional revenue and rapidly onboard new customers, which grew by 10%.
- On the downside, DDOG's conservative EPS guidance reflects challenges in predicting usage patterns during volatile macro conditions and cloud optimization trends. The usage-based model makes revenue projections less predictable than traditional subscription-based SaaS, but DDOG tends to guide conservatively.
DDOG's Q1 results emphasize its strong growth and healthy free cash flow generation of $244 million, reinforcing its market position in cloud observability. However, mixed guidance due to macroeconomic caution, rising expenses, and variability in the usage-based model is overshadowing the positive Q1 outcomes.
