Datadog (DDOG) shares surged more than 11% in morning trading on Thursday following S&P Global’s announcement that the software company will soon be added to the S&P 500 Index ($SPX). The move is set to take effect before the market opens on July 9, with Datadog replacing Juniper Networks, which exits the index following its acquisition by Hewlett Packard Enterprise (HPE).
This development marks a significant milestone for Datadog. The company’s inclusion in the S&P 500 signals that it has reached a certain level of size and stability. For many institutional investors and index-tracking funds, it also means it’s time to buy. These funds are required to adjust their portfolios to reflect the benchmark, often resulting in a short-term spike in share price, as we’re currently seeing with Datadog.
Datadog, known for its monitoring and security platform for cloud-based applications, has a strong underlying business. DDOG continues to expand its customer base, with more clients adopting multiple products. Its investments in artificial intelligence (AI) are also showing promise and could play a key role in sustaining long-term growth.
While the S&P 500 inclusion provides Datadog stock with a temporary boost, its solid fundamentals, growing customer base, and strong bookings are likely to continue driving its share price higher.
Datadog delivered a strong start to the year, showing continued momentum in both customer growth and product adoption, which will support future growth. In Q1, Datadog posted a 25% year-over-year increase in its top line and surpassed the Street’s forecast.
Customer growth remains a key strength for Datadog. The company ended the quarter with approximately 30,500 customers, up from 28,000 a year ago. Notably, the number of high-value customers, those generating over $100,000 in annual recurring revenue (ARR), jumped to 3,770, accounting for 88% of total ARR. This growth reflects Datadog’s increasing traction with large enterprises.
Datadog’s focus on expanding its platform usage among existing customers is paying off well. More clients are using multiple Datadog products than before. For instance, 83% are now using at least two products, and 51% are using four or more. Remarkably, 13% are now using eight or more, up from 10% the previous year. This multi-product engagement boosts revenue per customer and reflects the platform’s deep value and stickiness among users.
