Datadog Q4 results and outlook top expectations, acquires Timber Tech and Sqreen for observability, security

Datadog said it made the two startup acquisitions to “prioritize the build-out of our security offerings” and to have a “vendor-agnostic observability data pipeline.”

Application performance monitoring specialists Datadog this afternoon reported Q4 revenue and profit that topped analysts' expectations, and forecast this quarter's sales higher as well, and said it would acquire two software startups, Timber Technologies and Sqreen.

The report and news releases sent Datadog shares down 4% in late trading.

Datadog is among a handful of high-flying software names that focus on varying aspects of the software development lifecycle, and the monitoring functions, within DevOps, including Dynatrace.

Chief executive Olivier Pomel said the company was "pleased" with the quarter's results, which, he said, "closes a strong year in which we generated 66% revenue growth and positive free cash flow. In a year filled with unique challenges, we are proud of our execution and business performance."

Pomel, noting the two acquisitions, said that the company in 2020 "enhanced our positioning as the most complete and cloud-native end-to-end observability platform."

"But we are even more excited for what's to come," he added, "and plan for meaningful continued investments to enhance our long-term positioning."

Five-year-old, Paris-based Sqreen makes software for so-called application security management. Terms of the deal were not disclosed but Sqreen has received $16.4 million in financing from venture capital firms that include Greylock Management. 

Four-year-old Timber, based in Brooklyn, New York, makes software for observability, specifically, a package called Vector, which is described as "a vendor-agnostic, high-performance observability data pipeline. Terms of the deal were not disclosed but Timber has received venture capital of over $6 million from firms including Ludlow Ventures.

As Datadog puts it, "With Vector, customers can collect, enrich, and transform logs, and other observability data both on-premises and in cloud environments, and can route this data automatically to the destination of their choice."

Datadog had done four deals prior to tonight's announcement, since 2015.

Datadog's revenue in the three months ended in December rose 56%, year over year, to $177.5 million, yielding EPS of 6 cents, excluding some costs.

Analysts had been modeling $164 million in revenue and a 4 cents a share.

Datadog said its number of customers who each generate $1 million or more in annualized recurring revenue had risen from 50 a year earlier to 97.

For the current quarter, the company expects revenue in a range of $185 million to $187 million, and EPS of 2 cents to 3 cents. That compares to consensus for $181.5 million and 4 cents a share. 

For the full year, Datadog projects revenue of $825 million to $835 million, and EPS of 10 cents to 14 cents. That compares to consensus for $803 million and 19 cents.