Starting a thread here for DDOG: (down 23% premarket, but rising somewhat since then )
All things considered there’s plenty to like about this quarter:
-Record non-GAAP net income of $125.3m, up from $83.7m last year in Q2
-GAAP net loss of -$3.9m, which is the best it’s been since Q1 2022, when they reported a $9m net income
-Beat their own revenue estimate for the Q by 1.5%
-Free cash flows of $141.7m, representing a 28% FCF margin, the highest it’s been since Q1 2022
The bad:
-Lowered its annual guide by 2%
-Revenue growth for this quarter of 6% QoQ and 25% YoY is very bad relative to what it was in previous years. For perspective, the average of the past 4 quarters of QoQ growth is 5%. But at this time last year, that average was 13%. Said differently, just look at their YoY rev growth numbers the past six quarters:
83% → 74% → 62% → 44% → 33% → 25%
-Revenue growth problems most likely stem from enterprise customer growth declines, which have declined almost in lock step with revenue growth. This quarter saw a 3% QoQ increase in enterprise customers, or 24% YoY.
-There is an argument that’s been floating around that DDOG would benefit from AI because, “more stuff to monitor”. This argument IMO got much weaker and will take longer to play out in DDOG’s favor.
In summary, I don’t think DDOG became a much worse stock with the release of this report. -23% seems silly, but the context here is that DDOG was up 47% before earnings came out. Some selling probably makes sense given the big run up YTD, growth continuing to slow down, and the AI thesis not working out as quickly as some may have hoped.