Here is the full quote from this morning’s conference call regarding the guidance. It was the first question asked, go figure. Bolding is mine.
Sanjit Singh – Morgan Stanley – Analyst
“I wanted to talk a little bit about some of the trends you’re seeing in the business and particularly with respect to the guide. I guess the first question is, as the quarter progressed, when did you start to see some of these slower usage trends in some of these verticals? If you could give a comment on that? And then, David, in terms of the guidance in terms of how you were framing it, can you give us a sense of what you’re sort of assuming in the back half with respect to Q3 into Q4? Is it some of the trends that you’re seeing in July? Did that improve or stabilize or worsen? Just give us some sort of context on how you are framing the guidance for the back half, that would be super helpful.”
Olivier Pomel – Co-Founder and Chief Executive Officer
"So I’ll start maybe with the linearity. We did see the viability in usage growth that we mentioned. We saw that start really in late April, May and June.
So as we got deeper into the quarter. I should say that… if you’re thinking of what happened in terms of COVID, this is not a sharp pullback as we have seen at that time. But we saw it’s just for some customers still growth, but slower growth for certain types of customers and others than what we would have seen historically. I should say that while we did see that for some of our products, especially the ones that have more of a volume component, net logs and some APM, we did see continued healthy growth in host or I should say, cloud expenses and containers, which really are indicative of the fact that the cloud migration is proceeding as it was before.
In July, we did see an improvement on those trends, but we still remain conservative in our outlook for the short term because of the noisiness of the data we’re seeing there. There’s a few more valuations, a bit more noise. And all of that is underpinned by some macro uncertainty. So we want to derisk that a little bit and give it more careful."
David Obstler – Chief Financial Officer
"On guidance, as you know, we have always been conservative in our guidance by using lower organic growth and other metrics than seen historically and continue to maintain that philosophy. I would note that if you look at the raise here and the percentage of the beat that was passed through into the raise from Q2, it is lower, more conservative than we have done in previous quarters. And the reason for that is the macro uncertainty where we can’t be as confident about what happens given the macro uncertainty.
So I would say… there were some incremental conservatism put into this. But I’d remind everybody that we’ve always been quite conservative in using assumptions that are lower than the past when we give guidance."
Me here- I think the message is pretty clear. Because of the macroeconomic environment, they thought it prudent to put some ‘incremental conservatism’ into this guide. Yes, growth is going to slow somewhat due to the macro challenges, but we should not expect growth to drop to less than 7% QoQ as it did in Q2 2020, the peak COVID quarter. Datadog usually beats its guidance by 7-8% but with this extra conservative guide, I would not be surprised to see a 9-10% beat next quarter assuming trends continue to improve as they did in July. All in all, not the most impressive quarter but certainly not thesis busting, in my opinion. I am happy to have this company remain as my largest holding.
Rex