Datadog Earnings Delight: Q1 Strength and an Upbeat Forecast

Key Points

• Datadog demonstrated significant financial strength in its recent quarterly report, surpassing revenue and profitability expectations from market analysts.
• The company issued an optimistic financial forecast for the upcoming periods, signaling sustained confidence in its ability to expand market share.
• Ongoing innovation and strategic acquisitions are enhancing Datadog's platform capabilities, positioning it well to capitalize on evolving customer needs.

Datadog, Inc. NASDAQ: DDOG has once again demonstrated its operational prowess, delivering first-quarter 2025 financial results that exceeded forecasts and prompted an encouraging upward revision of its full-year guidance.

This display of strength signals the company's continued ability to capitalize on the enterprise shift to cloud environments and the increasing complexity of managing digital services. 

As organizations rely more on real-time data and strong security, Datadog’s observability platform remains well-positioned.

Still, with the stock trading at a premium, the company’s rapid growth and expanding market opportunity will continue to be closely weighed against its valuation.

Datadog’s Impressive Earnings Meet High Expectations

Datadog’s earnings announcement on May 6, 2025, provided a picture of robust operational execution. The company reported revenue and earnings per share (EPS) that exceeded Datadog’s analyst community’s forecasts.  

Datadog announced strong first-quarter 2025 financial results, demonstrating continued growth. Total revenue reached $761.55 million, a 24.6% year-over-year increase and above the $741.73 million consensus estimate. This revenue growth was driven by strong demand for their monitoring and security solutions.

Profitability was also a highlight, with a non-GAAP net income per share of $0.46, exceeding the $0.42 consensus. GAAP net income per diluted share was $0.07. Non-GAAP operating income was $167 million, resulting in a 22% non-GAAP operating margin.

Datadog's success in acquiring and growing relationships with larger clients is evident in the 13% year-over-year increase in customers with an Annualized Recurring Revenue (ARR) of $100,000 or more. This segment grew to approximately 3,770 customers as of March 31, 2025, and reportedly generates about 88% of the company's total ARR, underscoring its significance.

The company also exhibited strong cash generation, with $272 million in operating cash flow and $244 million in free cash flow, representing a healthy 32% free cash flow margin. Datadog maintains a solid financial position with $4.4 billion in cash, cash equivalents, and marketable securities at the end of the quarter.

Datadog's Raised Guidance and Strategic Drivers

Looking ahead, Datadog expects Q2 2025 revenue between $787 million and $791 million, and non-GAAP EPS between $0.40 and $0.42. More notably, it raised full-year guidance, projecting revenue between $3.215 billion and $3.235 billion, and non-GAAP EPS between $1.67 and $1.71.

Management highlighted ongoing platform innovation and the increasing demand for observability solutions tailored to AI workloads. Notably, “Born-in-AI” companies accounted for 8.5% of Q1 revenue, up from 6% in Q4, and were credited with nearly all of the quarter’s revenue beat.

Recent acquisitions of Eppo and Metaplane further support the company’s push into product analytics and data quality, expanding its addressable market and platform depth.

Balancing Datadog's Potential Against Its Price Tag

Datadog's stock price as of May 7, 2025, was around $105.31, resulting in a market capitalization of approximately $36.10 billion. The company's trailing price-to-earnings ratio (P/E) is high, in the range of 206-207, which is typical for growth-oriented technology companies where significant future earnings growth is expected. Based on the midpoint of its fiscal year 2025 non-GAAP EPS guidance (approximately $1.69), the forward P/E ratio is about 62.3x. While still representing a premium, this forward-looking metric provides a different view when considering anticipated earnings growth.

The price-to-sales ratio (P/S), calculated using fiscal year 2024 revenue of $2.68 billion, is approximately 13.47. Using the midpoint of the fiscal year 2025 revenue guidance ($3.225 billion), the forward P/S ratio is around 11.2x. These P/S multiples, while lower than the peaks observed in some growth stocks, still indicate that the market places a considerable value on each dollar of Datadog's revenue, anticipating strong growth and future profitability. For investors, the key question is whether the company's strong growth trajectory and expanding market opportunity can continue to justify these premium valuation levels.

Does Datadog Have More Room to Run?

Datadog has demonstrated strong operational execution through its first-quarter 2025 performance, marked by solid revenue growth, momentum in high-value customer segments, and an optimistic full-year outlook. The company is well-positioned within major secular trends like cloud migration, increasing infrastructure complexity, and growing demand for observability in AI workloads. Strategic acquisitions further aim to strengthen its competitive edge and broaden its market reach.

However, this strength is set against the reality of a premium valuation. While high multiples are typical for companies with Datadog’s growth profile, they also set a high bar for future performance. The key question for investors is whether Datadog can consistently meet or exceed expectations. Ultimately, the company’s ability to sustain growth and expand margins will determine whether its stock has more room to run.