Is DDOG Able to Sustain its Profitability?

Large-cap Software company Datadog is down -2.8% during this afternoon's trading session, while the S&P 500 moved -0.0%. With last year's reported gross margins at 79.3%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.

Gross margins give insight into the basic economics of the company' product line and its pricing power in the target market, yet it's essential to balance this with a review of Datadog's operating margins. Operating margins take into account the company's fixed overhead costs, in addition to the cost of revenue used to calculate gross margins.

Is Datadog plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-02-24 1,675,100 -346,743 79.3 2.68
2022-02-25 1,028,784 -234,245 77.23 -1.53
2021-03-01 603,466 -130,197 78.43 3.91
2020-02-07 362,780 -88,949 75.48 n/a

Datadog's gross margins have a coefficient of variability of 2.1%, with a low percentage rate being more desirable as it indicates stability. Revenues have a delta of 46.6% while cost of revenue is shrinking at a rate of -40.5%, which allows for the company's gross margins to grow at an average 1.2% per year.

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-02-24 1,675,100 -1,387,052 -3.5 -88.17
2022-02-25 1,028,784 -813,695 -1.86 18.42
2021-03-01 603,466 -487,042 -2.28 58.92
2020-02-07 362,780 -293,971 -5.55 n/a

The table above tells us that, on average, Datadog has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 10.9%.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.