Datadog(DDOG US)released(6May HKT)its1Q25results:total revenue wasUS$761.6mn,up24.6%YoY(1Q24:26.9%;4Q24:25.1%),3%better than bothour forecast and Bloomberg consensus forecast;non-GAAP net income aftertax adjustment was US$167.9mn,up6.5%YoY,and was10/8%better than ourforecast/consensus,driven by the beat in revenue,and better-than-expectedoperating efficiency improvement.Although the incremental investment mayweigh on near-term margin expansion,we remain positive on DDOG’s long-termbusiness development potential,driven by the secular trend of digitaltransformation and cloud migration.We lift2025-2027E revenue forecast by1%to account for better-than-expected usage growth,while cut non-GAAP net profitforecast by1-2%to factor in rising cloud hosting costs which may weigh onGPM.Our new TP of US$158.7(was US$156.4)is based on unchanged16.6x2025E EV/sales,inline with its two-year average plus one s.d.Maintain BUY.\r
Solid customer and ARPU growth.By end-1Q25,Datadog’s platform hadover30,500customers(1Q24:28,000),while the number of largecustomers with an ARR of US$100,000+reached3,770during the sameperiod,up13%YoY and contributing to88%of the company's total ARR.As of1Q25,c.83/51/28/13%of customers used more than2/4/6/8productsof the company,up by1/4/5/3ppts YoY respectively.On key operatingmetrics:1)billings were US$748mn,up21%YoY;2)RPO was US$2.31bn,up33%YoY and current RPO was up c.30%YoY;3)net dollar-basedretention rate was in a high-110s percentage in1Q25,largely stable QoQ.In1Q25,AI native customers contributed8.5%of DDOG’s ARR(4Q24:6%)and6ppts of YoY revenue growth(4Q24:5ppts).\r
Incremental investment to drive international expansion and long-termgrowth.For1Q25,non-GAAP GPM came in at80.3%,down3.0ppts YoY,which management attributed to the rise in cloud-hosting costs as DDOGsupported large growth spikes from some of its largest customers.Non-GAAP R&D/S&M/G&A expenses saw YoY growth of32/25/34%YoY,asmanagement continues to execute hiring plans to drive for future growth.Management noted that sales representative headcount has beenincreased by25%YoY,including over30%YoY growth for the Enterprisesegment.The investment has also been weighed a little bit towardsinternational expansion where sales rep headcount growth was in the mid-30s YoY.\r
Investment could weigh on near-term earnings growth but shouldbenefit long-term development.Management guided for2Q25E:1)revenue of US$787-791mn,representing22-23%growth YoY,and was2%ahead of consensus;and2)non-GAAP net income per share of US$0.40-0.42,inline with consensus.For2025,management is looking for:1)\r
representing YoY growth of20-21%;and2)non-GAAP OP of US$625mn-645mn(previous:US$655mn-675mn),implying OPM of19-20%;3)netincome per share of US$1.67-1.71.The lift in revenue growth guidance wasmainly due to stronger-than-expected usage growth in1H25,whilemanagement remained cautious for2H25amid macro uncertainties andmaintained2H25revenue guidance unchanged.The cut in OP guidancewas mainly driven by the downward revision of GPM assumption due torising cloud hosting costs.
05/08
