Datadog Inc. today posted strong second-quarter results that topped the market’s expectations, but its revenue guidance missed the mark and sent its stock plummeting.

The company’s shares are currently down more than 17% in trading.

New York-based Datadog sells a platform that organizations use to monitor their infrastructure for technical issues. The platform can detect malfunctions in cloud instances, containers, serverless workloads and a variety of other technology assets. It also provides features for certain other tasks, such as finding security vulnerabilities in application code.

The first surprise the company delivered during the second quarter was in the profit department. Datadog’s adjusted operating income was $106.5 million, which translated into adjusted net income of 36 cents per diluted share. Analysts were expecting 28 cents.

Datadog’s top line likewise outperformed the consensus estimate. Analysts were expecting the company to close the quarter ended June 30 with sales of $500.6 million. Datadog instead delivered $509.5 million, which represents a 25% year-over-year growth rate.

The company’s sales momentum was driven partly by continued demand from large customers. The number of organizations that spend more than $100,000 annually on Datadog products increased 24% year-over-year, to about 2,990. The company had about 2,420 such customers 12 months earlier. 

“We continued to execute well in the second quarter, with 25% year-over-year revenue growth, strong new logo bookings, continued customer growth, and increased multi-product adoption by our customers,” said co-founder and Chief Executive Officer Olivier Pomel.

Although Datadog’s second-quarter revenue topped expectations, its sales forecast for the next quarter and the full fiscal year fell short. 

The company estimates that it will generate between $521 million and $525 million in revenue during the current quarter. Analysts were expecting $534.48 million. For the full year, it’s anticipating sales of $2.05 billion to $2.06 billion, slightly less than the $2.09 billion the consensus estimate forecasted.

The silver lining of Datadog’s guidance was its adjusted earnings forecast. In that area, the company’s third-quarter and full-year projections both surpassed the consensus estimate. 

Datadog’s plan to boost its long-term revenue growth emphasizes new product development. As part, the company is increasingly venturing beyond the observability market that has historically been its main focus. 

Last quarter, Datadog launched a tool called Intelligent Test Runner for enterprise software teams. Software engineers often use automated tests to scan new code for errors before releasing it. Its new tool reduces the number of automated tests that must be run to detect code errors, which lowers costs.

Artificial intelligence is another focus of the company’s product development strategy. 

Alongside the launch of Intelligent Test Runner, the second quarter saw Datadog debut a new offering called LLM Observability. It promises to help companies find technical issues in their large language models. The company also introduced a chatbot, Bits AI, that allows customers to interact with its platform’s core features using natural language commands. 

Image: Datadog