Shares of Datadog (NASDAQ: DDOG) fell as much as 8.4% early Tuesday, then briefly turned positive before closing the day down 2.4% after the cloud-based data analytics platform's conservative forward outlook overshadowed an otherwise strong quarterly update.

Datadog's fourth-quarter 2023 revenue grew 26% year over year to $589.6 million, translating to generally accepted accounting principles (GAAP) net income of $0.15 per share (compared to a loss of $0.09 per share a year ago). Adjusted for non-recurring items like stock-based compensation tax provisions, Datadog's non-GAAP earnings were $0.44 per share. Analysts, on average, were expecting slightly lower earnings on revenue closer to $568 million.

Datadog also generated an impressive free cash flow of $201.3 million during the quarter, fueled by operating leverage at scale as both new and existing customers expanded their use cases for the company's leading observability platform. Datadog ended the year with 396 customers generating annual recurring revenue (ARR) of at least $1 million, up 25% year over year. Its number of clients generating ARR of at least $100,000 also climbed 15% to 3,190.

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Source Fool.com