Datadog's Revenue Miss: A Sign of Enterprise Spending Slowdown

Datadog, a leading cloud-based monitoring and security platform, reported annual revenue and profit below Wall Street estimates on Thursday, citing sluggish enterprise spending on its cloud security services. The company's shares fell 10% in premarket trading as investors reacted to the news.

The slowdown in enterprise spending on Datadog's services can be attributed to several factors, including economic uncertainty, high competition, and high interest rates. As enterprises grapple with economic uncertainty and fears of recession, they are rethinking their spending priorities and cutting budgets. This has resulted in a general pullback in enterprise spending, affecting Datadog's cloud security services as well.

Datadog faces stiff competition from firms such as Dynatrace, which is trying to unify its security and data management platforms using artificial intelligence. This high competition has weakened demand for Datadog's data monitoring services as enterprise customers rethink their spending priorities. Additionally, high interest rates have also weakened demand for Datadog's cloud security services, as enterprises are more cautious about their spending.

Datadog forecast 2025 revenue and profit below Wall Street expectations, hurt by sluggish customer spending on its cloud security services. The company expects revenue between $3.18 billion and $3.20 billion for its fiscal 2025, compared with analysts' average estimate of $3.24 billion. It also expects annual adjusted earnings per share between $1.65 and $1.70, while analysts expect $2.05.

The company's first-quarter revenue forecast of $737 million and $741 million was also largely below the analyst estimate of $740.3 million. It expects quarterly adjusted EPS between 41 cents and 43 cents per share, below estimates of 46 cents.



Datadog's president, Amit Agarwal, is also stepping down at the end of 2024 and is expected to join the board. The company's recent quarterly results showed strong growth in large customers, with 462 customers with ARR of $1 million or more, up from 396 a year ago. However, the slower 13% growth in $100K+ ARR customers suggests potential challenges in mid-market expansion.

In conclusion, Datadog's revenue miss is a sign of the broader slowdown in enterprise spending on cloud security services. As enterprises grapple with economic uncertainty and high competition, they are cutting back on spending, affecting Datadog's business. To maintain its competitive edge, Datadog must focus on innovation, strategic partnerships, and customer satisfaction to address these challenges and drive growth in the face of these headwinds.