Ben’s Portfolio update end of February 2025

SlowAndFast · March 2, 2025, 1:55am

Ben’s Portfolio update end of February 2025

Returns and portfolio holdings:

	Portfolio	Notes
2020	63.6%	Since May 12, 2020, when I started this portfolio with over 40 companies, mostly holding large cap tech & FAANG, but also some high-growth SaaS.
2021	13.1%	Discovered Saul’s board in February 2021 and started concentrating to 16 companies through December 2021.
2022	-60.7%	(-15.6% Jul-Dec) Concentrated a bit more through July 2022 from which point I started posting my monthly updates on Saul’s board, holding about 12 or fewer positions.
2023	77.8%	First full year of Saul-style investing
2024	31.7%

2025	YTD	Month
Jan	9.1%	9.1%
Feb	5.0%	-3.7%

These are my current positions:

	Feb 2025	Jan 2025	First buy*
Cloudflare	19.4%	18.0%	11/2/2020
Nvidia	18.7%	17.5%	5/13/2020
Snowflake	13.3%	13.2%	2/8/2021
Crowdstrike	11.7%	11.6%	5/13/2020
Datadog	9.4%	10.6%	5/13/2020

Axon	8.2%	9.3%	4/2/2024
Samsara	7.1%	7.5%	1/8/2024
Monday	6.7%	5.6%	9/13/2021

Zscaler	3.5%	3.6%	3/4/2021
TradeDesk	1.9%	3.2%	5/13/2020

*held through today

Company comments

Cloudflare:

Key insights:

Delivered strong Q4 revenue growth (26.9% YoY), with Q1 QoQ growth outlook seasonally weaker and extra layer of conservatism due to limited historical data on consumption patterns.
Upper end of new FY guide exceeded my expectation and pointing to revenue growth durability close to 27% YoY.
Revenue growth is not limited by competition or pipeline, but capacity of their sales force; expecting ramp up materialize in 2Q25.
AI edge inferencing is posed to drive significant revenue growth for Cloudflare going forward. Demonstrated 7x Capex efficiency over the Hyperscalers. This gives Cloudflare the opportunity for significant margin expansion and customer growth. At the same time this deepens Cloudflare’s moat with significant switching costs/efficient scale and network effects with their other products.
NRR increased to 111%, from 110% despite of headwinds created by the move to pool-of-funds deals with customers.
cRPO grew 29.9% YoY, faster than revenue growth and against the same headwind.
Extremely strong customer growth, with record net adds in total customers (16k, previous record 13k in 2Q24 and 2020 to 2024 typically around 6500), record net adds in $100k+ customers (232 adds, previous record 219 in 3Q24) and $1M+ customers grew more than 18.5% QoQ to 173 total!
Profitability shows nice operational leverage (Operating expenses grew only 17.6% YoY in Q4 while revenue grew 26.9% YoY), despite gross margin headwinds which seem to cyclical and likely to turn towards a tailwind in coming quarters.
FCF also currently experiences a headwind as “the accelerating shift from AI training to AI inference has given us confidence to continue to increase our investment in our GPU rollout as we provision greater capacity to support demand in 2025.” Cloudflare has demonstrated in the past that they can make those Capex expenses pay off, which I believe will again lead to great FCF margin expansion down the road.

Cloudflare reported Fiscal Q4 2024 earnings on 2/6/25 and I thought this was an excellent report. Revenue was $460M (6.9% QoQ, 26.9% YoY), versus my expectation of $459M (6.7% QoQ, 26.6% YoY), beating their guide by 1.9%.

To interpret the new Q1 guide, we have to consider two things. First, Q1 QoQ revenue growth has historically been lower in Q1. Indeed, averaging over the last five years Q1 QoQ growth has been 28% lower than Q4 QoQ growth (it has been 44% lower in 1Q24 and 31% lower in 1Q23). Second, it appears they put an extra layer of conservatism on their new Q1 guide as a result from moving to a consumption based revenue model: “Variable revenue is still a new and growing part of our business model. While we saw strong signals during the fourth quarter reflecting increased usage, we are maintaining a prudent outlook for the first quarter, given more limited historical data on consumption patterns and seasonality.” With that I would expect a slightly larger beat in Q1 and interpret their guide to lead to revenue of approximately $480M (4.4% QoQ, 26.8% YoY), similar to Q4’s YoY growth of 26.9% and last Q1’s QoQ growth of 4.4%.

We also got a first FY guide for FY25. While I expected the upper end of this guide to be around $2.07b - $2.09b (24% - 25% YoY), I was happy to see them guide for up to $2.094b (25.4% YoY). If they can beat this initial guide by 1.3% (they beat their initial FY24 upper guide by 1.1%) it would mean that YoY revenue growth stays durable at 27% in FY25. Framing this guide with how customer behavior is evolving gives me confidence that they can actually deliver on this: “As we’ve talked about multiple times, since the beginning of 2024, customers have been disciplined with their budgets, scrutinizing deals carefully and ensuring every dollar spent delivered clear and immediate value. That trend continued through Q4. However, as the quarter progressed, we saw encouraging signs that confidence is beginning to return, particularly in the U.S.” Another important piece of information they gave us is about what is actually limiting their growth: "we’re not limited by our total addressable market by our competitors or by our pipeline. (…) Our constraint has been and at least for another quarter, will continue to be the capacity of our sales force. (…) Net sales capacity turned the corner exiting 2024. In Q2 of 2025, we’ll start to see capacity and ramp reps begin to meaningfully accelerate.” This also addresses the relatively low Q1 guide discussed above, while the strong FY guide points to QoQ re-acceleration starting Q2.

Overall, I view Cloudflare as a company with three main pillars. 1. Content delivery (historically their bread and butter), 2. Security (a relatively new branch in which they started to compete with companies like Zscaler a couple of years ago with products like Zero Trust), and 3. Artificial Intelligence, specifically edge inference. This is their newest pillar, and while they (unfortunately) don’t break out how much revenue comes from each segment, I expect this third pillar to have potential to become their biggest source of revenue going forward. Here, Cloudflare has upgraded and continues to upgrade their own one-of-a-kind worldwide distributed edge network to provide GPU-based AI inferencing services with super-low latency, by essentially buying and putting GPUs into their existing worldwide network of servers (this point is also important to understand Cloudflare’s profitability trend when it comes to free cash flow, discussed later). Customers can use the “Cloudflare Workers” platform to then run applications on this edge and “the killer application for Cloudflare Workers is turning out to be AI. The model of programming is uniquely suited for building tools like AI agents, and our serverless architecture, which allows you to pay only for what you use based on CPU or GPU type, positions Workers to become the go-to platform for developers who want the best price performance for AI inference and agentic workflows.” So no wonder, “a leading AI company expanded their relationship with Cloudflare, signing a 1-year $13.5 million pool of funds contract.” What also helps Cloudflare significantly is efficiency improvements as we have recently seen with new large language models like DeepSeek where “we are seeing that there are equivalent [as in DeepSeek] optimizations that can be made with AI inference on Cloudflare’s platform, resulting in faster performance and lower prices for customers and higher margin, and less capex for us.” Indeed, “where a typical [Hyperscaler-]customer is seeing sub-10% utilization across their GPUs, our peak utilization of GPUs is now around 70% (…) And what that effectively means is, again, roughly speaking, we can get effectively seven times today the amount of work out of a $1 of CapEx spent in this area that than with the various Hyperscalers. And again, that either means that we can capture that as margin or we can pass that on to our customers.”. What also positions Cloudflare very well to profit here is that AI computation workloads slowly shift from model training to model inference, which is exactly where a super low-latency edge network might come in handy: “We believe inference is a bigger opportunity than training and our team continues to find step-function breakthroughs that put us well ahead of any alternative.”

With that I believe Cloudflare is building a strong moat also in this third pillar with significant network effects (for example providing AI services and security for those at the same time) and switching costs/efficient scale (for example if a customer chose Cloudflare for AI inference services because of the super low latency offered by their edge network, they’ll have a hard time finding a competitor that can offer similar or better performance as it would be extremely costly for a competitor to rebuild such a world-wide distributed edge network). And Prince has another argument that I find quite visionary, even though it is a lot less tangible at this point in time: “But all that may pale in comparison to the fourth opportunity [of AI] [the other three being 1. Cloudflare getting more efficient in business processes, 2. AI makes their performance and security products smarter and 3. AI using the Cloudflare Workers platform, which I discussed above]. Cloudflare counts many of the most important AI companies as customers. We also count a huge portion of the world’s content creators as our users. Being between those two puts us in an important role to help figure out the business model of the post-search web. Cloudflare sits in a unique position to help figure out how content creators are compensated, what agents are allowed where and on what terms, and how the AI-driven web of the future will fit together. It’s early days, but the conversations we’re having with all the relevant parties feel foundational for the future.”

As you can see there is certainly a lot of excitement in the investment narrative for Cloudflare, so let’s dive into the secondary growth metrics to see if and how this narrative is reflected by the numbers.

Starting with their expand motion, I was happy to see their NRR increase again by one percentage point to 111%. As I have discussed in my last two recaps of Cloudflare’s earnings NRR (as well as cRPO) were seeing headwinds related to their move from a subscription model to a consumption model. Management confirmed that this is still the case, but getting better: “As a reminder, there can be some variability in this metric quarter to quarter, but we believe the recent decelerating trend in DNR is stabilizing despite continued near-term headwinds from increased traction with pool of fund contract.”

Next, let’s talk about customer growth. While, as I said above, they don’t break out revenue from different segments we can get a hint at their traction with their new AI pillar by looking at the number of active developers on Cloudflare Workers. Management reported that they surpassed an incredible 3 million active developers in Q4, which is up from 2.4 million in Q3 and about 2 million in Q2. So this means QoQ growth went from about 20% in Q3 to about 25% in Q4. So this squares well with the narrative on AI growth discussed above.

Looking at total customer numbers we also see a step change that started in Q2 of FY24. They were adding around 6000 to 7000 customers per quarter in the ~13 quarters before Q2. Then came Q2 with 13028 net adds, Q3 with 11374 net adds and now Q4 with 16174 net adds. So customer YoY growth accelerated now for the 8th consecutive quarter: 13.5% → 14.7% → 16.7% → 17.1% → 17.2% → 20.7% → 21.7% → 25.3%.

Maybe even more exciting is their large (>$100k) growth. While growing total customer numbers by 25% is impressive, large customer growth is more exciting because we don’t actually know how much all of those 237,714 customers spend. So it is great to see a record new large customer adds of 232, which is up from 122 in Q1, 168 in Q2 and 219 in Q3. And finally, it is kind of mind-blowing that there are 173 customers that spend more than $1M annually on Cloudflare. This number is up from 118 a year ago and grew by at least 27 in Q4 alone (more than 18.5% QoQ growth). Again these customer growth developments nicely reflect the narrative discussed above.

And to see how all those customers are going to spend their money going forward, we can look at the development of Cloudflare’s RPO growth: In Q4, RPO grew 12.2% QoQ to $1.69b. YoY RPO grew 35.5% and cRPO grew 29.9% YoY, both growing meaningfully faster than revenue growth. So overall, their land and expand motion is doing very well.

Lastly, let’s talk about profitability. Cloudflare’s gross margin has been slowly and cyclically fluctuating between 77% and 80% in the last 22 quarters and appears to currently again reach bottom-territory:

So while this weighs a bit on bottom-line margin expansion, we could see this becoming a tailwind again in coming quarters if it goes up again as it did in the previous two cycles. Keeping this in mind we see that operating expenses continued to decrease in Q4 versus Q3 as a percentage of revenue (from 64.1% in Q3 to 63.0% in Q4). This continues the trend we have seen with Cloudflare in the last 6+ years ultimately leading to operational leverage (Operating expenses grew only 17.6% YoY in Q4 while revenue grew 26.9% YoY.) The reason we didn’t see OM or NM expansion this quarter was because of the dynamic with gross margins contracting seasonally, which I described above. FCF margin also didn’t expand (10.5% in Q3 and 10.4% in Q4). So while this might sound alarm bells to someone who only looks at EPS and profitability based valuation metrics it misses the point about contracting operating expense margins as well as the reason for their lower FCF margins: “As we mentioned last quarter, the accelerating shift from AI training to AI inference has given us confidence to continue to increase our investment in our GPU rollout as we provision greater capacity to support demand in 2025. As a result, we expect network capex to be 12% to 13% of revenue for full year 2025.” Cloudflare has invested significant capital for GPU purchases (described at the beginning of this recap) which reduce FCF. Capex rose from $30M, which was typical before and including Q2, to $50M in Q3 and $73M in Q4. I am OK with that as those investments are critical to fuel AI edge inference capabilities which I expect will be a strong future revenue driver. In fact Cloudflare has demonstrated that they can monetize Capex investments in the past, and I have written about it here in May of 2024: Cloudflare’s fascinating Q1 2024 earnings - #20 by SlowAndFast.

Overview of how Cloudflare performed versus my expectations:

Revenue expectation: $459M (6.7% QoQ, 26.6% YoY), implying same 1.6% beat as last Q.
→ $460M (6.9% QoQ, 26.9% YoY), 1.9% beat
Q1 new revenue guide: $472M (2.9% QoQ, 25% YoY) which I would interpret as $480M (4.5% QoQ, 27% YoY) expecting QoQ growth to seasonally decelerate, but stay at Q4’s YoY growth rate.
→ $468.5M (1.9% QoQ, 23.7% YoY) interpreted as $477M (3.8% QoQ, 26.1% YoY)
I would like to see NRR around 110%.
→ 111%
Total customer growth around 5% QoQ (~11000 net adds) would be fantastic.
→ 7.3% QoQ, 16174 net adds!
I would like to see large customer growth around 6% QoQ (~200 net adds).
→ 7.1% QoQ, 232 net adds!
I would like to see RPO grow around 12% QoQ to $1.68b.
→ 12.2% QoQ to $1.687b
I would like to see cRPO grow around 12% QoQ to $1.18b.
→ 12.2% QoQ to $1.18b
I would like to see operating income around $70M.
→ $67M
I would like to see a FCF margin around 14%.
→ 10.4%
I am looking for an initial upper FY25 revenue guide of $2.07b - $2.09b (24% - 25% YoY). For comparison, their initial FY24 guide they gave in Q4 of FY23 was 27.4% YoY.
→ $2.094b
Thoughts from previous Q: Ben’s Portfolio update end of November 2024

Monday:

Key insights:

Sequential net new revenue was again strong in Q4, at $17M, up from $15M in Q3.
While this will likely drop again to $14M in Q1 due to seasonality, their new FY guide points to sequential net new revenue above $20M in Q2, Q3 and Q4.
Price increase tailwinds will continue through 3Q25, with more price increases on the table as they continue adding value to their platform.
Monday is pushing up-market, and successfully so, as seen by strong large customer growth numbers.
This is compounded with expanding NRRs in all, 10+ and $100k+ customer cohorts.
CRM and Dev account growth hit a bit of a roadblock as those numbers came in significantly lower than I had expected, but new Service product shows good initial traction and seems to add a lot of value as it has the highest ACV of the entire Monday product suite.
Strong profitability, with operating leverage resulting in margin expansion (OM to 15% from 10.5% in 4Q23 and NM to 21.4% from 16.6% in 4Q23) and strong FCF margin (27%).

Monday reported Fiscal Q4 2024 on 2/10/25. Overall, I think Monday is chugging along. They largely met my expectations for the quarter and seem like doing just fine. So lets have a closer look.

Revenue came in at $268M (8.8% QoQ, 32.3% YoY), beating their guide by 2.7% and basically meeting my expectation of $269M. The clear positive here is that their net new revenue was again high, at $17M QoQ, up from $15M in Q3 and clearly above the $13M range they were stuck in before they started their price increase. Their Q1 guide was for $275M (2.6% QoQ, 26.8% YoY), which I now interpret as $282M (5.4% QoQ, 30.2% YoY). We also got a first FY25 guide which also met my expectation as the guide was for $1.221b (25.6% YoY). So looking at their Q1 guide and FY guide I think it is realistic that they can beat the FY guide by about 3% which puts them on track to reach 30% revenue growth in FY25, continuing the trend of slowly decelerating revenue growth. Of course, the details will depend on how revenue will be positively impacted by their rolling price increase which will continue through 3Q25 (From 2Q24 call: “We expect kind of the first of the price increase to finish by the end of Q3 of next year. I think that’s where most of the enterprise accounts, definitely above 50,000, where we’re new and will benefit from the price increase for those accounts. So it will take another kind of full year to do the full cycle for those enterprise customers.”) and how they will perform landing new customers and expanding with existing ones.

A criticism for Monday’s revenue growth could be that their price increase is just a temporary tailwind for revenue growth that will turn into a headwind once it is over. But I think it is premature to draw this conclusion because we don’t know if Monday won’t simply implement another price increase in a few quarters; as, by the way, would be pretty standard for any software company. We even already have two hints that future price increases are likely: First “gross retention continues to be at record levels (…) [and] gross retention has improved significantly.” This demonstrates that the price increase didn’t hurt them, and second, here is what Elian (CFO) told in the 1Q24 call, when he got the question “Do you plan on having predictable annual price increases or will it be more ad hoc?” His answer was “With regards to price increase, we try to make sure that when we increase price, we do it based on value that we provide to our customers. We added a lot of value throughout the last few years, and this is why we were only, for the first time, we increased the price for our existing customer base. So I think we don’t have a clear answer with regards to what would be the annual yet. But I think overall, we think it will be more tied to value-added – value-adding rather than just having like the majority of it coming every year.” So bottom-line, future price increases are definitely on the table.

Now, let’s talk a bit about their land and expand motion. Monday has been pushing up-market and this is clearly reflected in their numbers. Total and 10+ seat customer growth numbers were pretty weak versus my expectation, while large, $50k+ and $100k+ customer growth numbers were very strong and much better than I had expected: Monday ended the year with 245000 vs. 270000 expected total customers, significantly decelerating YoY growth from 21% in FY23 to only 9% in FY24. They only added less than half of the new 10+ seat customers than I had expected (454 adds vs. 1100 adds expected). On the other hand, $50k+ customers grew by 10.1% QoQ, adding a record 294 new customers to this cohort (the previous record was in Q2 with 222 adds). Similarly, $100k+ customers grew by 11.8% QoQ, adding a record 127 new customers to this cohort (the previous record was also in Q2 with 98 adds). Total ARR contributions from the two large customer cohorts grew to 36% (from 34% in Q3) and 24% (from 22% in Q3).

Net retention rates also showed significant progress this FY:

All customers: 110% → 110% → 111% → 112%
10+ cohort: 114% → 114% → 114% → 115%
$50k+ cohort: 114% → 114% → 115% → 115%
$100k+ cohort: 113% → 114% → 115% → 116%

So seeing large customer growth acceleration compounding with large customer’s NRRs expanding is a really nice demonstration of Monday’s successful push up-market.

Adoption of Monday’s new CRM and Dev products seems to hit a bit of a roadblock as those numbers came in significantly lower than I had expected. CRM account growth decelerated to 12.2% YoY, from 19.1% in Q3, adding 3021 new accounts, but at least the net adds are significantly above 4Q23 where they added only 2293 accounts. And in both 4Q23 and 4Q24 the sequential raw add numbers were down by 15% QoQ and 24% QoQ, so there might be a little bit of a seasonal aspect here. Dev accounts, on the other hand not only decelerated YoY to 9% from 16% in Q3, but also the net adds were pretty weak at only 283, down from 431 in Q3 and 629 in Q2. So here we had now two quarters in a row with significant growth deceleration, which is certainly worrying.

Monday’s newest product, “Service” grew 130% QoQ, but from a very small base, which now reached 378 service accounts. So clearly the numbers are still too small to judge, but the product seems to have strong initial traction as “Initial customer demand has been very strong, with monday service already showing the highest cross-sell of our new products”. What I thought was even more exciting though is that Monday Service has “the highest ACV [annual contract value] of the entire Monday product suite”, which I interpret as a strong sign that customers draw significant value from this product.

Finally, coming to profitability, both operating and net margins continued expanding significantly, to 15% (up from 10.5% last Q4) and to 21.4% (up from 16.6% last Q4). This was a result of operating expense margin contracting to 74.2% from 79.3% last Q4. With operating expenses only growing 24% YoY, while revenue grew 32% YoY, we have nice operational leverage here. Free cash flow was also strong, growing 31% YoY to $73M, resulting in a margin of 27%, just as last Q4.

Overview of how Monday performed versus my expectations:

Revenue expectation: $269M (7.1% QoQ, 32.8% YoY), implying a 3% beat.
→ $268M (8.8% QoQ, 32.3% YoY), 2.7% beat.
Q1 new revenue guide: $277M (3.0% QoQ, 28% YoY) which I would interpret as $285M (6% QoQ, 31% YoY), expecting QoQ growth will slightly decelerate.
→ $275M (2.6% QoQ, 26.8% YoY), interpreted as $282M (5.4% QoQ, 30.2% YoY).
I would like to see raw sequential revenue increase around $17.8M.
→ 17M
I would like to see around 270000 total customers, around 59860 customers with 10+ users (1100 net adds), around 3105 customers in the $50k+ cohort (198 net adds) and around 1149 customers in the $100k+ cohort (69 net adds).
→ 245000 total customers YoY 4Q23: 21.1% → 4Q24: 8.8%, 59214 10+ customers (454 net adds), 3201 $50k customers (294 net adds), 1207 $100k customers (127 net adds).
I would like to see CRM accounts growth around 16.5% QoQ (to 28816, 4081 net adds).
→ 12.2% QoQ (to 27756, 3021 net adds).
I would like to see Dev accounts growth around 16% QoQ (to 3654, 504 net adds).
→ 9.0% QoQ (to 3433, 283 net adds).
I would like to hear an update on their new Service product with good traction.
→ numbers still too small to judge, but “Initial customer demand has been very strong, with monday service already showing the highest cross-sell of our new products and the highest ACV of the entire Monday product suite.”
I would like to see that NRR greater or equal to 111%, NRR10+ greater or equal to 115%, NRR50k greater or equal to 115% and NRR100k greater or equal to 115%.
→ 112%, 115%, 115%, 116%.
I would like to see operating margin around 15% (~$40M operating income), net margin around 19.5% and FCF margin around 32% with FCF of around $85M.
→ OM 15.0% ($40.3M), NM 21.4%, FCF margin 27% ($73M).
I am looking for an initial upper FY25 revenue guide of $1.22b - $1.23b (25.5% - 26.5% YoY). For comparison, their initial FY24 guide they gave in Q4 of FY23 was 27.7% YoY.
→ $1.221b (25.6% YoY)
Thoughts from previous Q: Ben’s Portfolio update end of November 2024

Datadog:

Key insights:

Delivered 25% YoY revenue growth, which I expect to only slightly decelerate in FY25, to 24-25% YoY based on FY25 guide and secondary forward looking metrics summarized below.
RPO has duration headwind, but given that, was significantly stronger than I had expected, growing 25% QoQ, or a duration-adjusted YoY growth in the mid 30s. cRPO growth in-line with revenue growth at ~25% YoY.
Very strong customer growth quarter for Datadog, while continuing to increase implied average annual contract value: Customer growth accelerated to 9.9% YoY, from 9.0% in Q3 and average annual contract value grew 14% YoY.
NRR grew to high-110s percent, up from mid-110s percent in Q3 and percentage of customers using multiple products stayed roughly constant this quarter: 2+, 4+, 6+ and 8+ products customers changed from 83% → 83%, 49% → 50%, 26% → 26% and 12% → 12%.
Profitability margins slightly contracted due to increased operating spending in R&D and S&M to fuel future revenue growth. I expect the already great OM, NM and FCFM to stay roughly constant in FY25 at ~25%, ~30% and ~29%, respectively.

Datadog reported Fiscal Q4 2024 on 2/13/25. Revenue was $738M (6.9% QoQ, 25.1% YoY), versus my expectation of $739M (7.1% QoQ, 25.3% YoY) and beating their guide by 3.8%. This resulted in sequential net new revenue of $48M, which is a significant improvement over $42M last Q4. Their new Q1 guide was $739M, so essentially flat QoQ. This is not a surprise though and has been typical for recent Q1s. Assuming another 3.8% beat would bring QoQ growth for Q1 to 4%, which is up from 3.7% in 1Q24 and 2.6% in 1Q23. YoY growth would then even accelerate to 25.5% from currently 25.1%. For the full-year guide I wanted to see an upper end of in-between $3.2b - $3.25b and we essentially got $3.2b, which is 19% YoY growth. The important take-away here is that Datadog likes to guide very conservatively, especially in their first FY guide. There first FY24 guide which they gave in 4Q23 was for 21% growth at the upper end and they delivered 26.1%. So I think it is reasonable that Datadog can manage 24.5-25% YoY growth in FY25, which would mean that their growth would be almost durable, just decelerating slightly from FY24’s 26.1%. What do secondary growth metrics tell us about this prospect?

RPO is a bit tricky to interpret these days, because RPO duration has been down in recent quarters creating an artificial headwind for RPO. It turns out this Q4 was not different. RPO duration was again down, in which case I had expected that RPO would grow at least 15% QoQ. The great news is that it actually grew 24.7% QoQ, to $2.27b. This corresponds to an adjusted YoY growth in the mid-30s according to management commentary. cRPO grew around 25% YoY, in-line with revenue growth. Billings was also very strong this quarter, growing 32% QoQ, or 26.5% YoY. I will say though that they did have a bit of a difficult billings quarter in Q3, so I would attribute some of the strong billings growth this quarter just to timing of deals that had shifted from Q3 to Q4. In any case, given the YoY growth rates of billings and RPO, YoY revenue growth durability going forward is plausible.

In recent quarters Datadog has been struggling with customer growth, in both total and large cohorts. So I was happy to see a very strong Q4 with those metrics: total customers grew by 2.7% QoQ, up from 1.9% in Q3 and 1.9% in 4Q23, to now 30000, adding ~784 new customers. $100k+ customers grew 3.4% QoQ, up from 2.9% in Q3 and 1.9% in 4Q23, to now 3610, adding 120 new customers (up from 100 in Q3 and 60 in 4Q23). Datadog also managed to grow $1M+ customers by 16.7% YoY to 462. With that, Datadog has continued to get more revenue from their customers and has now reached an average implied annual contract value of $98k per customer (Q4 rev*4/30000), growing 14% YoY. I just point this out as this offsets some of the revenue headwinds due to slowing customer growth numbers. So having had a really strong customer growth quarter in addition to that, certainly points to future revenue growth strength.

On the expansion side of things, Datadog is doing just fine, with NRRs improving and now reaching high-110s percent in Q4, up from mid-110s percent in Q3. Multi-product expansion was a little bit on the weaker side this quarter. 2+, 4+, 6+ and 8+ products customers changed from 83% → 83%, 49% → 50%, 26% → 26% and 12% → 12%. While some saturation is expected for the 2+ and 4+ cohorts, I was just a bit disappointed in the breather they took with 6+ and 8+ customers.

Finally, coming to profitability, Datadog increased their spending as a percentage of revenue in S&M and R&D. This resulted in an operating expense margin of 57.4%, up from 56.1% in Q3 and explains the slight margin contraction on operating and net income, where OM contracted 0.8% QoQ to 24.3%, NM contracted 0.5% to 29.3%. FCF margin was 32.7%. I expect profitability margins to roughly stay where they are currently as Datadog continues to expand their “capabilities in sales and marketing, including expanding in our less mature geographies, adding more channel and alliance capabilities, and extending our efforts around larger enterprises, among many other initiatives. And in R&D, we are focused on delivering more value to our customers, both in expanding the number of products for our customers and the capabilities we add as part of the Datadog platform. Meanwhile, we continue to balance our investments in long-term growth with financial discipline, as we have executed in the past.”

So overall, I though this was a solid quarter for Datadog and I expect only very slight revenue growth deceleration in FY25, delivering close to 24-25% YoY revenue growth, while maintaining their strong profitability margins.

Overview of how Datadog performed versus my expectations:

Revenue expectation: $739M (7.1% QoQ, 25.3% YoY), implying a 3.9% beat.
→ $738M (6.9% QoQ, 25.1% YoY), 3.8% beat.
Q1 new revenue guide: $739M (0% QoQ, 21% YoY) which I would interpret as $769M (4% QoQ, 26% YoY) expecting YoY growth will accelerate while QoQ growth seasonally down.
→ $739M (0.2% QoQ, 21% YoY), interpreted as $767M (4% QoQ, 25.5% YoY).
My Q4 revenue expectation implies about $49M raw sequential revenue increase (the 21.6 I had written down originally was meant for 1Q25 and would be ~2x more than last Q1).
→ $48M raw sequential revenue increase.
I would like to see RPO with more than 15% QoQ growth if duration is still down and more than 27% QoQ growth if duration up again (>$2.1b to >$2.3b).
→ Duration was again down. RPO grew 24.7% QoQ to $2.27b. aYoY in mid-30s. cRPO ~25% YoY.
I would like to see QoQ customer growth around 2.0% (~584 new) and for the $100k+ cohort, greater or equal to 1.7% QoQ (>=60 new). Greater or equal to 450 total $1M+ ARR customers would be good.
→ 2.7% QoQ (784 new), $100k+ cohort 3.4% QoQ (120 new), $1M+ cohort 462 total.
I would like to see continued multi-product adoption progress with 2+, 4+, 6+ and 8+ products cohort percentages of 84%, 50%, 27% and 13%.
→ 83%, 50%, 26%, 12%.
I would like to see NRR greater or equal to 115% and management commentary that NRR is going up and improved over Q3.
→ NRR ~117.5% and improving.
I would like to see slightly expanding profitability margins (~0.5% expanded OM and NM from Q3), with around 34% FCF margin.
→ OM contracted 0.8% QoQ to 24.3%, NM contracted 0.5% to 29.3%, FCF margin was 32.7%.
I am looking for an initial upper FY25 revenue guide of $3.2b - $3.25b (19% - 21% YoY). For comparison, their initial FY24 guide they gave in Q4 of FY23 was 21.0% YoY.
→ $3.195b (19% YoY).
Thoughts from previous Q: Ben’s Portfolio update end of November 2024

Wrap up

Earnings season for our portfolio is almost over, with just Crowdstrike (03/04), Zscaler (03/05) and Samsara (03/06) left to report next week. I didn’t have time yet to dive deeper into Snowflake’s and Axon’s earnings reports but I am very pleased with the reports from Datadog and Monday, and especially Cloudflare, which I thought had a stellar quarter. I am looking forward to diving into the Axon and Snowflake reports and seeing what the remaining three companies will deliver next week. Until then …

I am wishing you all a great March!
Ben

Past recaps

This2ShallPass · March 10, 2025, 2:55am

Thanks Ben for your detailed monthly reviews! I always look forward to reading these.

Topic		Replies	Views
Ben’s Portfolio update end of February 2024 Saul’s Investing Discussions	0	2732	March 1, 2024
Ben’s Portfolio update end of November 2023 Saul’s Investing Discussions	1	3459	December 3, 2023
Ben’s Portfolio update end of August 2023 Saul’s Investing Discussions	0	2770	September 3, 2023
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Ben’s Portfolio update end of August 2024 Saul’s Investing Discussions	1	2664	September 8, 2024

Ben’s Portfolio update end of February 2025

Ben’s Portfolio update end of February 2025

Returns and portfolio holdings:

These are my current positions:

Company comments

Cloudflare:

Monday:

Datadog:

Wrap up

Past recaps

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