Shares in Datadog Inc. dropped in after-hours trading today after the data monitoring and analytics provider’s 2021 earnings guidance came in lower than expected and the company announced the acquisition of two startups.

For the quarter ended Dec. 31, Datadog reported a profit before costs such as stock compensation of six cents a share on revenue of $177.5 million, up 56% over the same quarter in 2019. Analysts had predicted a profit of two cents a share on revenue of $163.6 million.

For the fiscal year, Datadog booked a net loss of $13.8 million on $603.5 million in revenue. Operating cash flow came in at $109.1 million, with free cash flow of $83.2 million.

Highlights in the quarter included the software maker reporting it had added 97 customers with annual revenue of more than $100,000 in the fourth quarter and 1,253 large customers over the year, up 46% over 2019.

Datadog is predicting a first-quarter profit of two to three cents a share on revenue of between $185 million and $187 million. For the fiscal year, the company estimated a profit of 10 to 14 cents a share on revenue between $825 million and $835 million. For the first quarter analysts had predicted a four-cent-a-share profit on $186 million, while for the year they reckoned a 19-cent profit on $802.4 million in revenue.

Along with its earnings report, Datadog also announced the acquisition of data pipeline startup Timber Inc. and application security management platform provider Sqreen both for an undisclosed sum.

Timber was founded in 2016 and offers Vector, a vendor-agnostic observability data pipeline that allows customers to collect, enrich and transform logs and other observability data both on-premises and in cloud environments.

Under the terms of the deal,  Timber co-founder and Chief Executive Officer Zach Sherman and co-founder and Chief Technology Officer Ben Johnson will join Datadog within the product and engineering teams, respectively. Prior to its acquisition, Timber had raised $5.8 million in venture capital funding, according to Crunchbase, from investors that included NextView Ventures, Wonder Ventures and Notation Capital.

Founded in 2015, Sqreen offers a cloud security platform designed to monitor and secure cloud applications. The company’s ASM platform is said to take a modern approach to security in production for web applications and cloud workloads by leveraging microagents embedded in applications to identify and automatically protect against threats in real time.

Prior to its acquisition, Sqreen had raised $18 million in venture capital funding, including $14 million in April 2019. Investors include Greylock Partners, Y Combinator, Alven Capital and Point Nine. The deal is expected to close in the second quarter.

“Few software companies manage to grow 50%-plus once in the triple-digit millions of revenue, but Datadog has  – a testament to the dynamics on the monitoring/observability and system management market,” said Holger Mueller, an analyst with Constellation Research Inc. “The move of enterprise workloads to the cloud helps Datadog, as along with that move comes usually a change in instrumentation software, as CxOs want to have total visibility of all workloads.”

Still, he said, Datadog’s size and the need to integrate two acquisitions means it will need to operate differently now. “Management will have to show its skills in 2021 – starting with the successful integration of the new two acquisition of Sqreen and Timber,” he said.

Datadog shares fell just over 3% in after-hours trading.

Image: Datadog