Quick Look at Datadog (DDOG)'s Margins

Does large-cap Software company Datadog have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 14.2%, you might be telling yourself the Datadog is profitable -- but there is more to the story.

Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Datadog's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023 1,897,106 1,627,936 14 -17.65
2022 1,675,100 1,387,052 17 -19.05
2021 1,028,784 813,695 21 10.53
2020 603,466 487,042 19 0.0
2019 362,780 293,971 19

Datadog's gross margins are currently in the green, but this might not be the case for long. Since its cost of revenue is growing at a rate of 40.8% compared to 39.2% for its revenues, its gross margins have been shrinking -5.7% on average each year.

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023 1,897,106 1,627,936 -4 -100.0
2022 1,675,100 1,387,052 -2 0.0
2021 1,028,784 813,695 -2 0.0
2020 603,466 487,042 -2 50.0
2019 362,780 293,971 -4

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 1.5%.

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.