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Data observability platform provider Datadog (DDOG +6%) is seeing its initial gains triggered by another solid beat-and-raise in Q2 becoming slightly more tame as today's session progresses. Upon further inspection, DDOG's overall performance shows a few dings. For instance, the size of DDOG's earnings beat was slimmer than last quarter. Meanwhile, the company's raised FY24 guidance was close to its margin of upside delivered in Q2. Most importantly, DDOG commented that the overall business environment was roughly unchanged from last quarter, meaning that the company continues to face a cost-conscious consumer.

• An unchanged environment was illuminated by similar headline numbers from the past few quarters. Adjusted EPS was $0.43, a penny difference from the past two quarters. Meanwhile, revenue grew by 26.7% yr/yr to $645.28 mln, mirroring the growth rate from the past four quarters.
• Still, DDOG continued to chug along, adding 10% more customers yr/yr to 28,700, with a 13% bump in customers generating annualized recurring revenue (ARR) of $100K+. Platform adoption also continued trending higher, with a 1 pt lift in customers using two or more products and a 4 pt jump in customers using eight or more products.
• Customer usage growth was broadly in-line with DDOG's expectations and consistent with the overall improved trend it experienced over the past several quarters. Enterprises remain the highlight, boasting accelerating yr/yr usage growth. Additionally, small and medium-sized businesses (SMBs) are displaying steadier yr/yr growth trends. This is a critical development, given DDOG's exposure to this cohort. Churn also remains low, while gross revenue retention stayed stable in the mid-to-high 90s.
• AI remains a hot topic. DDOG's platform is integrated with prominent cloud platforms, including Microsoft (MSFT) Azure and Amazon (AMZN) AWS. DDOG collects and unifies all data streaming from cloud environments, making AI a perfect fit. DDOG expanded many of its AI tools, announcing the general availability of LLM observability and expanding its built-in AI copilot Bits AI.
• Looking ahead, DDOG hiked its FY24 guidance, projecting adjusted EPS of $1.62-1.66, up from $1.51-1.57, and revs of $2.62-2.63 bln, up from $2.59-2.61 bln. Like last quarter, DDOG remains prudent in its guidance, given the lingering uncertainty in the market.

DDOG's Q2 report was sufficient to spark decent buying interest today. However, an unchanged environment is not exactly good news, although it is not overly concerning either. There were a few uplifting trends, including stability in the SMB space as well as sustained usage growth in enterprises. As long as these trends persist, DDOG may mount a more meaningful recovery, possibly returning to July highs. However, a cost-conscious spending environment could linger for an extended period, keeping growth rates relatively subdued.