Datadog’s Q1 2025 Earnings Preview: Key Estimates and Insights
Datadog (DDOG) is set to announce its first-quarter 2025 results on May 6. The company projects revenues between $737 million and $741 million, with a forecast for non-GAAP net income per share between 41 and 43 cents.
Revenue and Earnings Estimates
The Zacks Consensus Estimate anticipates first-quarter revenues at $739.37 million, reflecting a year-over-year increase of 20.96%. For earnings, the consensus is set at 42 cents per share, indicating a decline of 4.55% compared to the previous year. This estimate has remained stable over the last two months.
DDOG Estimate Movement
Image Source: Zacks Investment Research
Earnings Surprise History
In the previous quarter, Datadog recorded an earnings surprise of 13.95%. The company has consistently beaten the Zacks Consensus Estimate over the last four quarters, with an average surprise of 21.04%.
Earnings Whispers for Datadog
However, based on our analysis, a repeat earnings beat may be unlikely this time. Currently, Datadog has an earnings ESP of -4.41% and holds a Zacks Rank of #3 (Hold), indicating modest expectations for the upcoming report.
Factors Impacting Upcoming Results
Datadog enters Q1 2025 after reporting strong bookings and 25% revenue growth last year. Yet, the company’s forecast of 21% growth for the current quarter suggests potential challenges. Recent customer contract renewals have leaned towards discounts and usage optimizations, which can affect revenue generation.
The company’s AI-native customers accounted for 6% of total recurring revenues in Q4. Though these customers are negotiating better terms, their growth may slow immediate revenue expansion. Datadog still considers AI a long-term growth driver, but benefits may not manifest in early 2025.
Sales and marketing expenditures surged by 31% year-over-year in Q4 as Datadog aimed to broaden its market reach. This strategic growth initiative has raised operating costs, and new sales staff typically take time to yield results, which could suppress profit margins.
In addition, competition in the observability and cloud monitoring sectors is intensifying. Major players like IBM, Microsoft, and Broadcom challenge Datadog in on-premise infrastructure monitoring. In the cloud segment, native services from providers such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure also pose significant competition, limiting Datadog’s pricing flexibility.
Despite these challenges, Datadog’s newer offerings, including LLM observability and Flex Logs, are attracting significant interest from enterprise clients. Recent large contracts, including deals with Fortune 100 companies, reflect a growing role in IT operations. If these new products gain adoption quicker than anticipated, they could help boost revenues.
Top-Line Growth Estimates for Q1
The Zacks Consensus Estimate for international revenues is $223 million, suggesting a 19.9% increase year-over-year. North American revenues are estimated at $516 million, marking a 21.1% growth compared to last year. Additionally, the expected number of customers for Q1 2025 is 30,630, indicating a 9.4% rise from the previous year, with 3,717 customers anticipated to generate over $100,000 in annual recurring revenue (ARR)—an increase of 11.3% year-over-year.
DDOG Price Performance and Valuation
Year-to-date, Datadog shares have declined by 28.5%, contrasting with a 10.6% drop in the Zacks Computer and Technology sector and a 5.7% decline in the S&P 500 index.
DDOG’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Datadog’s forward 12-month P/S ratio stands at 10.36X, significantly higher than the Zacks Internet – Software industry average of 4.88X. While this premium indicates high projections for future growth, it’s not appealing for value investors, as evidenced by a value score of F, indicating less favorable valuation metrics for DDOG at this time.
DDOG Trades at a Premium
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Datadog’s 2025 Q1 Outlook: Caution Advised for Investors
Investment Considerations
As Datadog approaches the first quarter of 2025, its platform fundamentals remain robust. Significant enterprise demand, new product traction, and increased multi-product adoption are key drivers. Nevertheless, investors are advised to adopt a hold stance as earnings season approaches. Expected revenue growth is likely to be moderate, influenced by customer optimization efforts, growing pricing pressures from competitors, and elevated sales and R&D expenditures. While Datadog’s success with large enterprises and increasing AI workloads presents long-term promise, current valuations are concerning, and near-term margin compression could persist. A more favorable entry point may develop as usage trends stabilize and newer products gain traction.
Conclusion
Datadog’s long-term outlook remains positive. However, current valuations appear to reflect anticipated growth. With short-term revenue pressures stemming from customer optimization, rising competition, and escalating operating costs, investors might benefit from maintaining their current positions. Although new product momentum suggests potential for future gains, prudent investors are encouraged to exercise patience ahead of the first-quarter results.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
