Shares of Datadog Inc. closed 23% higher today after it posted quarterly results that handily topped expectations.

The company, which sells observability and cybersecurity tools, generated an adjusted operating income of $207 million in the three months ended Sept. 30. That amounted to adjusted earnings of 55 cents per share. Analysts polled by FactSet projected 45 cents per share. 

Datadog’s top line also exceeded the consensus estimate. The company generated $885.7 million in revenue during the third quarter, a 28% increase from the same time a year earlier. The consensus analyst estimate projected $852.8 million.

About 89% of Datadog’s revenue comes from 4,060 large customers who spend over $100,000 per year on its software. The company’s tools are also used by about 28,000 other organizations. During today’s earnings call, Datadog Chief Executive Officer Olivier Pomel disclosed that the average customer configures its software with more than 50 third-party system integrations.

Datadog uses its integrations to stream telemetry from companies’ workloads to a centralized repository. It visualizes the data in dashboards that display application crashes, latency spikes and other technical issues. Datadog’s centralized dashboards remove the need for administrators to manually launch each application they wish to monitor and navigate to its built-in observability console. 

The company says that its largest customers, who spend over $1 million annually, use over 150 integrations on average. Pomel detailed that those customers included 15 “AI-native companies” in the third quarter. Datadog’s installed base also includes about 485 other AI-native companies.

One of the main contributors to the software maker’s growth in the third quarter was its suite of digital experience tools. Those tools enable developers to find usability issues in an application by collecting data on how users interact with it. According to Datadog, its digital experience suite’s annual recurring revenue topped $300 million in the third quarter.

The company’s cybersecurity products also factored into its strong quarterly performance. Datadog helps developers find vulnerabilities in application code, cloud configuration settings and user accounts. In percentage terms, its cybersecurity products’ year-over-year revenue growth percentage accelerated to mid-50s during the third quarter from mid-40s in the three months ended June 30.

Datadog maintains its revenue growth partly by regularly launching new products. The company’s current software lineup comprises about two dozen tools. One of the most recent additions, LLM Observability, became generally available in June. It enables developers to monitor their large language models’ output quality, latency and error rates. 

“We continue to see rising customer interest for next gen AI observability with over 5,000 customers sending us AI data through one or more of our AI integrations,” Pomel said.

Datadog expects to generate $912 million to $916 million in revenue during the current quarter, well above the $887 million that analysts projected. For the full year, the company is forecasting sales of $3.386 billion to $3.39 billion.

Image: Datadog