Bert Hochfeld has a well-written (as usual) article out on DataDog, which has been mentioned on the board and which is set to IPO today (I think.)
They appear to be big on R&D and small on sales force, with installation and integration simple enough that customers are largely self-service. My favorite kind of software and business model. It will be very interesting to see what the price is coming out of the gate.
The company has provided a planned price of $19-$22 share for 24 million shares. Both of those numbers are likely to be higher, and first day prices for the shares will doubtless be higher still.
IPO today @ $27
Datadog, Inc. Announces Pricing of Initial Public Offering
Business Wire September 19, 2019 NEW YORK–(BUSINESS WIRE)–
Datadog, Inc., the monitoring and analytics platform for developers, IT operations teams and business users in the cloud age, today announced the pricing of its initial public offering of 24,000,000 shares of its Class A common stock at a price to the public of $27.00 per share. The shares are expected to begin trading on the Nasdaq Global Select Market under the symbol “DDOG” on September 19, 2019, and the offering is expected to close on September 23, 2019, subject to customary closing conditions. In addition, Datadog has granted the underwriters a 30-day option to purchase up to 3,600,000 additional shares of Class A common stock at the initial public offering price less underwriting discounts and commissions.
The biggest question is valuation and how much it will pop. At the new offering price of $27, it would have a market cap of about $8 billion if my math is correct. Revenues are likely to be $425-450 million over the next year. That would give it a price to sales of about 17-18 which is in the range of our other favorite stocks with lower growth rates.
It might be worth a starter position if it doesn’t pop too much, maybe at $35 or below (P/S 23 or less).
The biggest question is valuation and how much it will pop
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I like the company, but we seem to fall in love with the shiny new toys and get mesmerized at 100% growth rates, as if they will stay that way for more than a year (we don’t know). They could easily plummet. CRWD, ZM.
The recent rotation repriced most of the growth stocks we follow.
I think it is fair to ask “what is fair multiple for growth stocks now?”
And I don’t know the answer. So I am not chasing anything…just my inclination.
If it is more expensive (in mkt cap) than ESTC, ZS, AYX right out of the gate, and their revenues are roughly in the same ballpark, you then have to believe:
they have measurably larger TAM, and the means to get it.
they will continue to have higher growth than 50-60% for more than 4 Q’s…otherwise all they have is a 9-12 month (short-term) growth rate lead on other common names.
What I do like is that they are a bottom-up type of play, similar to how ESTC goes to market.
I like the company, but we seem to fall in love with the shiny new toys and get mesmerized at 100% growth rates, as if they will stay that way for more than a year (we don’t know). They could easily plummet. CRWD, ZM.
The recent rotation repriced most of the growth stocks we follow. I think it is fair to ask “what is fair multiple for growth stocks now?”
And I don’t know the answer. So I am not chasing anything…just my inclination. If it is more expensive (in mkt cap) than ESTC, ZS, AYX right out of the gate, and their revenues are roughly in the same ballpark, you then have to believe:
1. they have measurably larger TAM, and the means to get it. 2. they will continue to have higher growth than 50-60% for more than 4 Q’s…otherwise all they have is a 9-12 month (short-term) growth rate lead on other common names.
DDOG looks quite interesting. I bought a small position (1%). I would like a bigger position but I agree with Dreamer that valuations of SaaS companies have compressed and I don’t want to chase. I considered the growth and the economics of their business model. The growth has been around 80% but what I like even more is the economics of their business model:
Our business has experienced rapid growth and is capital efficient. Since inception, we have raised $92.0 million of capital, net of share repurchases, and we had $63.6 million of cash, cash equivalents and restricted cash as of June 30, 2019.
This means that prior to the IPO they raised a cumulative net $30M to build this business: a business that is growing revenue at 80% ($266M TTM) and is already paying for itself.
It will be very interesting to see what the price is coming out of the gate.