It has been about a month since the last earnings report for Datadog (DDOG). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Datadog due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Datadog Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Datadog reported fourth-quarter 2023 non-GAAP earnings per share (EPS) of 44 cents, which increased 109.5% from the year-ago quarter and beat the Zacks Consensus Estimate by 2.33%.

The company’s net revenues of $589.6 million rose 25.6% year over year and beat the consensus estimate by 4.05%.

Quarter Details

The company ended the fourth quarter with 27,300 customers, up from 23,200 in the prior-year period.

In the fourth quarter of 2023, Datadog had 3,190 customers with an annual run rate (ARR) of $100,000 or more, which increased 15% year over year. These customers generated about 86% of the total ARR.

As of the end of the fourth quarter, 83% of customers used two or more products, up from 81% in the year-ago quarter. Additionally, 47% of customers utilized four or more products, up from 42% in the year-ago quarter.

Datadog’s net revenue retention was in the mid-110s in the fourth quarter as customers increased their usage and adopted more products.

Operating Details

In the fourth quarter, Datadog’s adjusted gross margin increased 290 basis points (bps) on a year-over-year basis to 83.4%.

Research & development expenses gained 14.8% on a year-over-year basis to $163.5 million, driven by increased investments in Datadog’s platform. Research & development, as a percentage of revenues, decreased 260 bps to 27.7%.

Sales and marketing expenses rose 5.3% year over year to $132 million. Sales and marketing expenses, as a percentage of revenues, contracted 430 bps to 22.4%.

General & administrative expenses increased 8.6% year over year, reaching $29.9 million in the reported quarter. General & administrative expenses, as a percentage of revenues, contracted 80 bps to 5.1%.

Datadog reported a non-GAAP operating income of $166.7 million compared with $83.1 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2023, Datadog had cash, cash equivalents, restricted cash and marketable securities of $2.6 billion compared with $2.3 billion as of Sep 30, 2023.

Operating cash flow was $220.2 million in the reported quarter, up from $152.8 million reported in the previous quarter.

Free cash flow during the quarter was $201.3 million compared with $138.2 million in the prior quarter.