An honest question, using DDOG as example

When the environment changed and Datadog went from 50%+ or 60%+ growth to (hopefully) 30%+ growth, we who were at one time adding to DDOG at $100+ or $150+ were suddenly selling DDOG at $80.

And now? This is the kicker to me …some of us are not buying back even below $65. Nothing appears to be wrong with the company…but in this environment it will just grow slower.

Do we need to have a more fundamental understanding of the value of the company? Or will we do just fine jumping to whatever can grow fast in this environment?

I lean toward the former. I’m not even sure what can grow fast in this environment. But I’m curious what others think.


PS – I’ve been adding to DDOG (and all of my positions) today.


…or are we concerned that Datadog is losing ground to competition, or that the story has changed for some other reason?


I’m sure everyone has a different perspective here, so I’ll provide mine.

For me, it’s a matter both competition, and a lack of understanding of where things will stabilize.

On competition:

  • Honeycomb recently raised $50M and shared strong metrics (160% NRR, >100% revenue growth
  • Grafana was recently added to AWS market place (and rumors are they are growing very rapidly given their open source nature)

It’s true that Datadog is an order of magnitude larger, but I’ve been seeing more and more evidence of players encroaching on its dominance as budgets tighten.

On stabilization:
I may be guilty of ‘price driving narrative’ but I just have no idea what the right “value” is for Datadog as it transitions its hypergrowth from its top-line to its bottom-line.

Personally, I prefer investing where I am confident that there is an underlying trend that the market may be underappreciating. For example, the enterprise customer growth for Cloudflare; or international growth for Crowdstrike. That gives me a clear trend that I can follow while I monitor its other operational and financial metrics.

But I really struggle with the likes of Datadog and Snowflake at the moment where the premise is “stabilization” of top-line while its bottom-line expands. Will revenue growth really stabilize in the 30%'s? What if things get worse before they get better?

These are questions that can happen to ANY of our companies - and granted - the worse may be behind us. The point is that it feels like its an exercise of price-discovery, and I have 0 confidence in my ability to do that.



Good questions Bear. For me, like rmtzp, I don’t know where the bottom is for Datadog, or what will define it? While all the rest of my companies are well off their bottoms, Datadog is hugging its bottom.

Like rmztp, I wonder if it is also competition from new sprightlier companies.

Take The Trade Desk for example. Yes, their revenue growth has also fallen off, but they are growing 24% or something like that, while their competitors are growing at negative 5%. They are dominating their field, taking market share, and when advertising comes back their growth should bounce mightily. Also their CEO was euphoric on his conference call, while Datadog’s was all gloomy about optimization and macro.

I’ve also put a little money from Datadog in Global-e, for example. Their revenue growth the last five quarters, from earliest to latest, was 54%, 65%, 52%, 79%, and 69%. And they provide services for retail companies, the kind of customers that Bill was saying are all washed up by the macro economy.

That’s a couple of examples. For those holding Datadog, I hope it does well, but for me, I feel (maybe incorrectly), that I have better places for my money.





I will point to one single metric that is troubling for me. In the past two quarters, Datadog generated $63.3M of net-new ARR. This compares to $92.7M net-new ARR generated in Q3’21-Q4’21. How does that compare to peers?

Datadog → 63.3/92.7 = 68%
Snowflake → 91.8/111.6 = 82%
Confluent → 29.3/31.6 = 93%
Cloudflare → 40.2/41.2 = 98%
Monday → 26.2/24.9 = 105%
Crowdstrike → 102.2/93.3 = 109%
Gitlab → 21.9/19.7 = 111%
ZScaler → 69.5/58.5 = 119%
SentinelOne → 23.6/19.9 = 119%

Understand that there are seasonal / business model factors in play too, but the difference is stark. Note that my numbers are manually calculated, but hoping there are no/minimal errors (that you usually catch).



I am having trouble reconciling why the actual growth rate and guidance has dropped so precipitously.

My first theory is that companies are optimizing heavily on their logs as an easy way to lower costs. I have seen this first hand with developers looking for where there are excessive logs or just informational logs which provide no value and eat up data. Anecdotally I had heard Datadog is expensive, but I have also never heard of an alternative product being proposed and this is my experience at multiple companies using Datadog.

If this is the case, there is only so much optimization that can be done and it’s probably over at this point and we could see a big rebound.

The second theory I have is that competition could be making inroads as mentioned by rmtzp. Their CEO Olivier Pomel used to use strong language to say it’s all greenfield, boring, and little competition on the horizon. I went back and searched the last two years of transcripts for what was said, and 2021 has somewhat more comments about the lack of competition.

In 2021, there were comments like:

  • Q1’21 So I have the usual boring answer, which is that we don’t really see any change in the competitive landscape.
  • Q2’21 It’s similar to what we’ve seen before. And the motion is really on-prem or legacy that is being consolidated into the cloud. That’s what we see. So we see the same trend that we’ve seen in the past, there’s nothing – there’s no other very interesting comment to make about that today. We see what we still see.
  • Q4’21 So first of all, we don’t actually see the competition all that much. So I don’t wake up every morning asking myself how are we going to win or whether we are winning. We mostly compete against customers building it themselves or building on their tool then starting in the cloud without a clear idea what’s going on. We do see a few big replacements in every quarter.

In 2022, there were comments like:

  • Q1’22 So I’m sorry, I’m going to give you the most boring answer ever, but we see no change. The situation there is very much the same as it was last quarter and even last year. We still focus largely on net new and cloud environments. We land fast and small mostly, and we end up growing quite a lot with those customers at the largest enterprises.
  • Q3’22 From a competitive perspective, the situation is about the same everywhere. And it hasn’t changed in any notable way over the past year, I would say. So there’s nothing shocked to say there.

However, the Q4’22 and Q2’22 transcripts do not have the word “compet” in the transcript even once. I’m not sure why the analysts stopped asking, maybe because Pomel kept dismissing the idea of competition on all previous calls.

Something is bothering me about the language here calling it boring, not interesting, nothing to comment on etc. It’s in major contrast to how other CEOs discuss competition, usually saying things like win-rates remain strong against next-gen or legacy providers. The competition here seems to be scoffed at or dismissed offhandedly.

My third possible theory is that actual software app usage is way down. I see this as the least likely option as it’s reported somewhat across the industry but not as the level corresponding to the revenue/guidance drop.

With regards to the price of Datadog I do not compare today’s $65 price to the 2021 high water mark prices. I basically account for a 65% valuation drop in all growth stocks as a baseline from the high point. Raising interest rates completely blind sided me and most other growth investors as I didn’t account for this risk properly. I do see $65 an attractive price right now, given I think management is overselling the difficulty of the macro picture.

Something Saul has mentioned many times is to take management at their word rather than assume they are sandbagging and setting themselves up for future earnings beats. While I do think Datadog is being overly cautious and conservative with their guidance, I don’t want to give that too heavy a weight. I’m still holding a moderately sized position here that I have trimmed a lot, but I’m banking on them doing well on this next report.


$62 seems to be an important number…

Long DDOG (1.1%)


Yes, that graph exemplifies what I meant by them sitting on their low while most of the rest of my companies are off their lows.


Thanks for the replies, guys. Regarding Datadog I’m hearing a few things:

  • Competition worries
  • Bad vibes from mgmt on the CC
  • Concern that the market “knows something” as it has sat near its low for a while now
  • Concern about optimization (I think this could be the reason the stock has stayed down, but I think it also provides a potential positive catalyst for the company’s performance)

Those things don’t worry me so much. We can’t always suss out mgmt like mind readers. There is always competition. The market always “knows something” …until it doesn’t.

The “until it doesn’t” haunts me. I’m sorry to those in ENPH, but it’s a great example of what I’m saying. There’s a problem with looking at a company’s last several quarters and hoping that trend will continue. I know many here are much more sophisticated, but trend is still a large imforming factor for all of us. The only thing I’m hoping to add here is that we need to be super skeptical and question the trend. When it changes, we’ll get out…but I worry we’ll have lots of setbacks doing that…especially in this environment. We can never know until later, in retrospect. But in retrospect, 2017 - 2021 was very unusual and favorable.

But even more so, I still believe in prefering subscription businesses, and valuing them more highly than tradition (“widget”) businesses.

And I always look at market cap and see if it passes the smell test – and I ponder how easy it is to see a 2x or 3x or 5x higher market cap.

These thoughts are still in formation for me.



One could argue that investors are simply not willing to pay such a high price for a company whose revenues are usage based in a macro/usage environment that is slowing and has had such a historically high valuation.

Here is a chart that shows the High, Low & Close of the Market Capitalization to TTM Revenues for each quarter since Datadog has been a public company:

This doesn’t say too much on its own. But here are a few more bits of information…

Here are historical revenues:

REV Mar Jun Sep Dec Tot
2017 18.4 21.9 26.7 33.7 101
2018 39.7 45.7 51.1 61.6 198
2019 70.1 83.2 95.9 113.6 363
2020 131.2 140.0 154.7 177.5 603
2021 198.5 233.5 270.5 326.2 1,029
2022 363.0 406.1 436.5 469.4 1,675

Here are historical YoY increases in YoY revenues:

YoYDelta Mar Jun Sep Dec
2018 21.3 23.8 24.3 27.9
2019 30.3 37.5 44.8 52.0
2020 61.2 56.8 58.8 63.9
2021 67.3 93.5 115.8 148.7
2022 164.5 172.6 166.0 143.2

The increases turned to a decrease in Q4.

Here is the quarterly guide growth over the prior quarter actuals (using the guide midpoint):

GuideGrth Mar Jun Sep Dec
2019 6.4%
2020 3.8% 2.5% 2.8% 5.4%
2021 4.8% 6.8% 5.8% 7.6%
2022 3.2% 4.1% 1.4% 2.4%
2023 -0.3%

The first decrease.

But they reported another quarter of >130% net retention.

Gross profits have been stable:

GM Mar Jun Sep Dec
2017 79% 75% 77% 77%
2018 77% 79% 76% 74%
2019 73% 75% 76% 77%
2020 80% 79% 78% 77%
2021 76% 76% 77% 79%
2022 79% 80% 79% 79%

Here are adjusted gross margins (forgot to put this in on the original post):

A GM Mar Jun Sep Dec
2018 77% 75%
2019 73% 75% 76% 78%
2020 80% 80% 79% 78%
2021 77% 76% 78% 80%
2022 80% 81% 80% 81%

The number of customers and big customer (>$100k ARR & >$1MM ARR) is growing nicely albeit at a slower rate.

In my opinion, the stock’s valuation was too high, there are business headwinds as a result of macro issues, good customers continue to spend, the number of customers is growing nicely and gross margins are doing fine and valuation is almost at historical lows.

When the macro turns around, this stock is likely to shoot up higher than most of the others we follow, because a lot of the investors that have exited or are staying out will likely pile back in.

I’m not selling any shares, unless the message changes when they report earnings for Q1.



DDOG bounced back strong today… why? because MSFT woke up everyone that AI is just starting… how much new traction they got because of OpenAI… all new things showed up on Azure… guess what, AI drives more usage of cloud and cloud usage drives APM businesses like DDOG…

Also saw MDB bounced back as Satya could not stop talking about how ChatGPT is using CosmosDB… I remember MDB management saying they have some customers using Atlas for AI based service

Also, to me, this board trying to expand from cloud and SW into other businesses including hardware businesses is a big contrarian indicator


Hi Bear,

This is a great question and something I’ve thought about a lot.

I’m not sure if the market “knows something.” It’s entirely possible, but it could also just be spooked from four years of hypergrowth followed by a year and a half of exhausting ups and downs, negative news, cost optimizations, recession fears, job loss fears, geopolitical fears, and so on.

While the market is being spooked by continuous negative input, we keep seeing small recoveries that make us hopeful, only to be beaten down again.

There’s no way to sugarcoat it: it’s just freaking frustrating.

And this feeling, for a long period of time, makes us (rightfully so) question ourselves, our holdings (and the universe, for that matter) :smiley:

Personally, my portfolio consists mostly of SaaS businesses, including consumption ones like DDOG, SNOW, and MDB, and despite the current sentiment, I feel okay with them. This is because:

  • They keep adding awesome new products and innovations at a fast pace.

  • Customers are still adapting these new products and expanding usage (not in terms of workloads), but at least in terms of the adoption of additional modules.

  • Customers are still being added, slightly slower but still pretty solid across the board.

  • Most companies even reported record new logo adds.

  • Lack of revenue highlights was funneled down to profitability highlights, for almost all the software companies we discuss here.

  • Consumption businesses (and even subscription businesses) can rebound very quickly and strongly.

  • I don’t see digitization and automation long-term tailwinds reversing. If anything, technological advancements in AI and the like should accelerate the speed of digitization because those who adapt late will be left behind with increasing efficiency (and resulting from that, revenue) gaps.

All of these points should set these businesses up for success once all of this improves.

I would, however, sell out if customer additions deteriorate significantly, or revenue AND profits go bad, or if the company is showing other competition- or execution-related problems. But as of now, I don’t see these for my holdings.

As for competition, I also like to refer to Peter Offringa’s first-hand IT purchase decision insights as a trusted source, e.g., here for DDOG.

Today’s stock price action for $DDOG (up 8.3%), $SNOW (up 5.7%), and $MDB (up 9.5%) for me is a strong indicator that the market is just waiting for positive signals to gain confidence in our beaten stocks again (like $MSFT and $GOOGL reporting better cloud results than expected, not worsening, and more positive cloud comments and numbers yesterday kicking up consumption businesses’ stock prices today). Let’s hope AWS doesn’t kill the momentum today with negative numbers.

I am definitely optimizing my portfolio in terms of the allocation sizes, and I also added $IOT to the mix, but I haven’t yet shifted from software investing into other types of companies. I am open to it, but I still feel confident in my current positions so to not make any super extreme changes.

SaaS/software companies are also much more in my wheelhouse due to my professional background, but also their business models, and I haven’t yet lost faith in them (yet) :smiley:

I might look back at this post some time down the road and regret my decisions, but for now, I can only do what feels right.

All the best & Good luck out there!




Unfortunately it is a lot more fuzzy than looking at q over q numbers. If you read my backgrounder on AI and watched the video you realize that all the skills needed are changing so fast that they are not really relevant. The winners will be the ones that can identify, hold onto and exploit creative talent. People that might be mediocre engineers and programmers but have the flexibility in thinking to adapt to and build in a world in flux.

So, to identify winners, we need to know leaders that can lead, and hopefully have already built a culture within their companies that can adapt to the changes.

I hope to post a new backgrounder in a few weeks, if I get the time. The AI world has already shifted for Chat GPT and has evolved into something much more powerful, I have not yet made it through the video and I will need to do some actual work; like load python, access github and things like that to demonstrate the new generation of AI.



Thanks for the question, Bear. It is a thought provoking one. While you used DDOG as an example, I took your question as relating to the environment as a whole so my answer focuses on that. To answer your question, I believe you will do just fine sticking with some of the Board heroes if you’re willing to wait 6 months to a year. I do not think the fundamental understanding of how these companies should be valued will change.

I want to start by saying that no one knows what the future holds, including me. Famous investor Stanley Drunkenmiller has said this is the hardest environment to predict in his 45 years of investing. See

But here is how I see things. It all boils down to one issue:

Were the concepts of cloud computing, data analytics (aka “AI”), cybersecurity, ctv ads, and work-flow management a “one time” need created by the pandemic or are these the building blocks of the future?

I believe these are the concepts of the future and that they will encompass every aspect of our lives. As a business, you’ll either embrace them or be left for dead. I can tell you firsthand that the pandemic opened the legal field up to a whole new world. We are still having federal and state hearings, conducting depositions, and having client meetings on Zoom or Teams. Not because we need to. But because it is so much more convenient. Our server closet is now a freezing cold storage closet. We pay a cloud company to host our “work stations” so we can log in from home, or any device anywhere, and feel like we are sitting at our desks at work.

If these are such important trends, then why is the growth of the pick-axe companies for these trends slowing? I believe it is due to a cyclical downturn in most all stocks, created by the fastest interest rate hike in over 40 years. I do not think it relates to company execution or odds of future success. The good news is that “cyclical” is another way of saying temporary. This downturn is temporary. It will end like all others have, and the potential upside on the other side is enormous.

One example of what I’m talking about can be gleaned from MSFT’s earnings call yesterday. Optimizations have sucked for cloud companies, but they are part of the long game. The hyperscalers want their customers to fall in love with the cloud by falling in love with how easily it can scale down just as fast as it scaled up. This is how you build a long-term customer that is going to consume a heck of a lot more over time than you might make in a few months of charging for un-used compute before an unhappy customer leaves the cloud. Here is the quote from the MSFT earnings call:

Mark Moerdler [Analyst]
Congratulations on the quarter and the guidance and thanks for taking my question. I’d like to drill into Azure and more specifically, Azure IaaS/PaaS consumption. IaaS/PaaS consumption has really stepped down recently, and it’s important to understand the macro versus macro and optimization that will rebound, whether it’s going to rebound quickly or is there a more fundamental issue? In other words, is it simply purely macro and everyone is stepping back a little bit and they’re going to hit the pedal as soon as this comes back or is there something more fundamental that is driving corporate maybe to step back and that, that slowdown could sustain even when the IT spending rebounds. Thank you.
Satya Nadella [MSFT CEO]
Thanks, Mark for the question. Maybe I’ll make three comments. And it’s also important, I think to distinguish between what I’d say, macro or absolute performance and relative performance because I think that’s perhaps a good way to think about how we manage our business.
First is optimizations do continue. In fact, we are focused on it. We incent our people to help our customers with optimization because we believe in the long run that the best way to secure the loyalty and long-term contracts with customers when they know that they can count on a cloud provider like us to help them continuously optimize their workload. That’s sort of the fundamental benefit of public cloud, and we are taking every opportunity to prove that out with customers in real time.
The second thing I’d say is, we do have new workloads started because if you think about it, during the pandemic, it was all about new workloads and scaling workloads. But pre pandemic, there was a balance between optimizations and new workloads. So what we’re seeing now is the new workloads start in addition to highly intense optimization driven that we have.
The third is perhaps more of a relative statement because of some of the work we’ve done in AI even in the last couple of quarters, we are now seeing conversations we never had, whether it’s coming through you and just OpenAI’s API, right? If you think about the consumer tech companies that are all spinning essentially Azure meters, because they have gone to open AI and are using their API. These were not customers of Azure at all.
Second, even Azure OpenAI API customers are all new, and the workload conversations, whether it’s B2C conversations in financial services or drug discovery on another side, these are all new workloads that we really were not in the game in the past, whereas we now are. So those are the three comments that I’d make, both in terms of absolute macro, but more importantly, I think, what is our relative market position and how it’s being changed.
Amy Hood [MSFT CFO]
Mark, maybe the one thing I would add to those comments is, we’ve been through almost a year where that pivot that Satya talked about from we’re starting tons of new workloads, and we’ll call that the pandemic time, to this transition post, and we’re coming to really the anniversary of that starting. And so to talk to your point, we’re continuing to set optimization. But at some point, workloads just can’t be optimized much further. And when you start to anniversary that, you do see that it gets a little bit easier in terms of the comps year-over-year. And so you even see that in a little bit of our guidance, some of that impact from a year-over-year basis.

Here is what I hear from this quote: (1) optimizations are good because they equate into long term customers wanting to stay in the cloud, (2) AI usage is bringing in a whole new swath of customers and cloud compute needs, and (3) we’re about to circle around to where we have easier prior year comparable numbers. Those are some powerful statements to me.

This downturn has been brutal–both emotionally and financially. But I believe that the pandemic gave us a peek into the window of the future and who the long-term winners are going to be. While valuations may have ticked up a little fast back then, I think the long-term winners will catch up to those valuations again once it appears we are nearing the end of this cyclical downturn. Here’s to hoping that is sooner rather than later.

Rant over, thanks for listening.

Hang in there.

@laneylawyer on Twitter
No investment advice, just musings.


I’m probably not providing any helpful answers here, just more questions. So that hopefully someone here can provide us answers!

Why has DDOG et al continued to lag the megacap performance YTD? Or even on a 1Y window?

Why have single digit revenue growers crushed the SaaS favorites on this board - to the point of nearly gross embarrassment?

What can be learned from these incredible differences in results?

DDOG: -5.8%

GOOGL: +17%
AMZN: +22%
MSFT: +23%
AAPL: +31%
META: +93.5% (includes afterhours gain)
NVDA: +88%

Otherwise I believe only NET has offered a respectable +38% and CRWD +20% YTD.
BILL down -30.5%
ZS down -15.5%



In hindsight, our SAAS companies were exorbitantly valued as if the 80%,100% growth rate would continue forever. In a down environment, lot of our SAAS companies are still in multiple discovery mode as nobody knows where the long term growth rate of these companies will stabilize. This a risk of growth investing. I still feel these companies are some of the best companies out there.
A few things that keep my conviction are

  1. It’s clear in a down turn, cloud is the way to go due to its elasticity. So this should accelerate the digital transformation trends to remain competitive.
  2. The amount of data will only increase with AI, which should bode well for these companies

The main part that concerns me is with advent of Generative AI, can these companies get disrupted by a cost effective solution? Personally I feel Generative AI is an opportunity, but we need to keep a close eye on this.


Thank you, Lisa. I agree it’s frustrating, and I agree it makes me question my holdings and the universe! And like @jonwayne235 mentioned, why are some single digit growers (or heck, even negative growers) up big this year when most SaaS stuff is flat or down? There’s even stuff like Roku up 40% and Carvana up 60% and Fastly up 80%. None of those seem like very impressive businesses compared to Snowflake, Datadog etc. (Although I note that Samsara is also up 50%+ this year and ~130% from its 52-week low. Part of why some things are up is just that they got cheap at some point.)

We know that as @laneylawyer says, the market has been hit by the “fastest interest rate hike in over 40 years.” But why are our businesses seemingly doing worse lately than these others whose stocks are up big?

My weird answer: they’re not. Their stocks are just still settling, believe it or not, from the crazy highs they got to. Even now NET and SNOW and IOT top this most expensive SaaS stocks list (, and DDOG is top 10 too. Even after falling from their highs, the stocks haven’t ever really gotten cheap. They have also fallen because lower growth outlooks are getting priced in, but I think the conclusion that this means these companies are struggling may be quite wrong. (I feel that this is probably true for CRWD and ZS too, which are not “cheap” but have fallen out of the top 10.)

We need to remember that historically 25 or 30% growth is phenomenal, and 40%+ (not a one-time bouncing off a year of negative growth, but following many consecutive years of growing even faster) is almost unheard of.

Growth durability is still the thing, I believe. We should probably conclude this thread as some of these questions are philosophical – but we should ask the durability question about each company. For the reasons I’ve given in posts above, I’m not convinced Datadog’s growth is slowing permanently to a level that is “too low.” I think it’s very possible they will continue to grow at 30%+ for years. Maybe we need to continue that discussion…or maybe we should pause until earnings next week…probably we should remember that we can’t really know the future – we’re just taking our best guess.

My point in this thread, as I stated in a post above, is that growth trends can be misleading. When something like ENPH is throwing up epic ~20% sequential growth like it did in Q2 and Q3 last year…we need to realize that probably won’t continue. When DDOG and SNOW are suffering because companies are optimizing cloud spending in any way they can…we need to realize that probably won’t continue. I don’t want to be a prisoner of the moment. But I do want to follow the numbers. I think we just need to make sure we zoom out and look at things from as many angles as possible.



The main part that concerns me is with advent of Generative AI, can these companies get disrupted by a cost effective solution? Personally I feel Generative AI is an opportunity, but we need to keep a close eye on this.

Generative AI is most likely to be a benefit to the many of the SaaS companies followed on this board like Cloudflare. It is adding a consumption based component to their revenue, and there are a lot of unexpected use cases which benefit Cloudflare. Here’s what they had to say in their Q4’22 call,

A leading generative AI company signed a 1-year $1 million deal. The company had been a user of our free tier since 2017. And this deal originally started out as a relatively small gateway DS opportunity to replace Cisco umbrella.

However, when their browser-based application debuted in late November, demand for the company’s AI-generated content absolutely exploded with unprecedented rates of adoption. Their Azure front door set are quickly proved insufficient at handling the massive load on their services from legitimate users as well as keeping fraudulent users from exhausting their resources. They started off with CDM, DDoS, bot management, Gateway D&S and more. We are actively exploring various paths for expansion to support their incredible growth as well as emerging use cases of their AI models and applications with cloud leer workers, API shields, imagery sizing and more.

We saw success with other AI companies in the quarter as well. given the resource constraints they all face as well as how attractive they are as a target to fraudulent users, cloud security solutions are an obvious choice for all of them, but many of them came to us for other reasons as well. AI companies, in particular, need to find wherever it’s most cost effective to run their models across multiple different cloud providers. They are, by their very nature, multi-cloud, but the data egress policies make it prohibitive to move large training sets between the cloud and our cloud flare workers.

What we’re finding with these AI companies is that R2 and other workers’ products naturally become the glue at the center of a multi-cloud ecosystem. R2 has become the natural neutral place for these AI companies to store their training data in order to make sure it can be inexpensively and efficiently access from anywhere. It’s obvious in retrospect. But it’s a use case we didn’t anticipate.Today, our largest R2 customer is another AI company using us for exactly the purpose of being a neutral place to store their training data.

Then in the Q&A section,

R2 is very much a consumption-based product. And so as AI data sets get larger and larger, we expect that we will be able to grow our 2 revenue along with that. And actually, our largest R2 customers, as I mentioned in the prepared remarks, is an AI company, and they’re growing at just extraordinary rates as they put more data into their models.

So what we see here is the growing data from AI is going to hugely benefit a company like Cloudflare. I think it will benefit Snowflake and Datadog too as the data sets are growing and analytics and logging are needed.

A SaaS company I could see generative AI possibly hurting is ZoomInfo. While ChatGPT has guard rails against getting personal information on someone, I could see an unlocked version being able to handle prompts like “Get me the emails and phone numbers of the top executives at company X”


I think we sometimes get too caught up on the romanticized idea of “buying the best companies” and not realize that after all - we’re buying a financial instrument. And in the end, the value of every financial instrument is simply the sum of its future cash flows.

Let’s take Datadog as an example and forget about its stock price. If we go back a year ago (Q4’2021), Datadog has ended their year as follows:

  • Revenue growth: 84% (112% annualized)
  • Net new ARR growth: 144%
  • RPO growth: 88%
  • $1M customer growth: 114%
  • $100k customer growth: 56%

How would the market value Datadog’s future cash flows at that point? Well, best-of-breed SaaS companies had experienced growth endurance of ~80%. So it would have not been irrational for investors to expect Q4’2022 revenue growth ~67%, with healthy leading indicators. Thousands of sophisticated investors modeled their DCFs and built their expectations around that. Instead, a year later Datadog reported:

  • Revenue growth: 44%
  • Net new ARR contraction: -41%
  • RPO growth: 30%
  • $1M customer growth: 47%
  • $100M customer growth: 31%

That is a GARGANTUAN difference to what the majority of investors were expecting. So naturally the projections from market participants is significantly lower today than it is a year ago. How much do the “awesome products”, “record logo adds”, and “funneled profitability” matter compared to this drastic change in expectations?

The cherry on top is adding that a year ago the cost of capital was expected to be much lower than it is today; which hits the value of those future cash flows. It’s a double whammy.

Sure, there aren’t a lot of companies that are going to pull the plug at their digitization initiatives. But we’ve seen ~15 months of cost optimizations, and there are no signs that they’re behind us. I’m seeing it in the industry every day; with companies consolidating vendors, negotiating tech consulting projects downwards, and adding scrutiny to project approvals. Will they eventually stop? Of course they will. But I’m willing to bet that the size of SaaS budgets for enterprises and start-ups alike, will not reach the heights of 2016-2021 again.

This is a key point! It could very well be the case that now, the consensus expectations for Datadog are too low. So if you think Datadog can eventually grow to the scale of one of the cloud titans (e.g., ServiceNow), it may prove to be an incredible buy at today’s price.

I hope this perspective provides some explainability, because I was feeling extremely frustrated and distraught throughout 2022. I guess I had to learn about valuation the hard way. But its allowed me to understand why some of these drastic share price moves may not be as irrational after all.



RMTZP I would recommend your post 10 times, if I could. I see things the same; but I’ll add, you’re ability to write it out is much appreciated.

I’ll also add, I’ve been waiting, literally years, for when the best of the best Saas companies, those that provide the infrastructure going forward and therefore those with the best growth endurance, are given their due by Mr Market. By saying ‘infrastructure’ I’m categorizing those companies that enable others, the point solutions. I believe growth endurance comes when providing a scalable platform necessary for everyone else to succeed over the next ten years. I use the word necessary for what abstracts away: privacy, regulations, and the emergent properties obtained by being a platform-a generalized ease of use and exponentially better outcomes for each and every point solution on the platform.

Long 31% Snowflake, 27%Cloudflare and a now 8% Datadog position.
(Also Tesla 27%)

Still waiting,