Datadog (DDOG, Financial) saw its stock drop by 8% after issuing FY25 guidance that fell short of expectations. The company, known for its SaaS solutions that help clients monitor IT infrastructure, tends to provide conservative forecasts. The FY25 earnings and sales projections, ranging from $1.65-1.70 and $3.175-3.195 billion respectively, were below consensus estimates, triggering a significant sell-off.

Despite the guidance setback, Datadog's Q4 results were largely positive:

• Datadog exceeded earnings and sales estimates, with an adjusted EPS of $0.49 and revenues of $737.73 million, marking a 25.1% year-over-year increase, consistent with the last six quarters.
• Usage growth from existing customers was stable, similar to the previous year. Enterprise customers showed strong growth, while small and medium-sized businesses (SMBs) posted slight year-over-year growth compared to Q3.
• Customer growth was robust, with 800 new net customers in Q4, bringing the total to around 30,000. Customers with annualized recurring revenue (ARR) of $1 million or more increased by 17% year-over-year to 462, and those with ARR of $100K or more grew by 13% to 3,190.
• AI-native customers contributed about 6% of Q4 ARR, consistent with the previous quarter but up 3 percentage points from the prior year. While this segment could lead to revenue volatility in the near term, it represents a positive long-term opportunity.
• Datadog reported faster growth compared to major cloud providers like Amazon (AMZN, Financial), Microsoft (MSFT, Financial), and Google (GOOG, Financial), despite these companies facing AI capacity constraints and missing Q4 cloud revenue forecasts.

Overall, while Datadog's Q4 report was strong, the disappointing FY25 guidance created selling pressure, especially given its high valuation of 71x forward earnings. Nonetheless, Datadog remains a leader in IT observability, with AI-native customer growth potentially supporting long-term growth despite near-term challenges.