Datadog (DDOG) - Thoughts and Purchases

A week ago, in my end of September report, I wrote that I had taken a 1.0% position in Datadog. During the last week I built it up, when I could get it at what seemed to me to be more bargain prices, and it is now a 7.1% position !!! It’s not usual for me to build up a new position so quickly to almost a mid-size position, but that’s what I did.

I was influenced mostly by Bert Hochfeld’s write-up in September, pre-IPO. I have to say that I can’t remember ever reading an article by Bert that was quite as enthusiastic about the company being discussed (maybe Alteryx before I bought it), even if he concluded that Datadog stock would probably be too expensive for him when it came out. It did hit a high of $40.70 just after the IPO. My broker has my average purchase price at $31.92. The lowest DDOG price was $30.01 during the meltdown. Friday’s close was $34.72.

A few quotes from Bert’s article (Bert usually doesn’t write like this. He generally is a conservative guy. Bolding is mine.):

It is likely that these shares will become a foundation of high-growth tech portfolios.

DataDog has unique qualities. It has an exceptionally efficient sales model which has led to financial results that are far superior to that of most tech IPO’s at this time.

Longer-term investors who want to invest in IT will find this a compelling investment with excellent growth and a strong competitive moat.

It has not only developed appealing software, but it has been exceptionally proficient in building and selling new products.

Datadog has been offering the right set of products at the right time with an efficient sales motion.

Regardless of my attitude about TAM, I think it is fair to say that the opportunity for DDOG is one of the largest that exists for an emerging enterprise software company.

Remarkably, it has spent just $21 million in capital to reach an implied ARR of $333 million. The financial efficiency of that metric is multiples better than average for most new software companies.

It is self-evident that DDOG, while it will achieve a high valuation, will do so because it has long-term sustainable growth and a very efficient business model.

Is that the Bert that I know? The conservative, cautious, careful, Bert???

There was also an article by Alex Clayton that was linked to by someone on our board (sorry, but I can’t remember who). I was not familiar with Alex Clayton, but it seemed a good and thorough article. He was equally euphoric about the company, saying a lot of the same things.

Let me tell you a bit about Datadog: It is a SaaS software company that leases subscriptions to software that monitor infrastructure, analyze application performance and provide log management (I don’t even know what log management means). Recently it has added new products that provide for what it calls experience monitoring (what the experience of your customers are, as close as I can figure it), and a network performance management product.

What makes it unique is that its competitors have single products that work in silos while Datadog intergrates them all and its “three pillars of observability can be observed on a single pane of glass.” That’s hard to beat. As Bert says, “DataDog basically set out to create a platform that has broad appeal to developers and operations managers. To accomplish that, it built a product that is self-serve in nature and supposedly can be installed in minutes. And having a platform that offers all the monitoring and analysis of logs in a single platform is more unique than you imagine.” And that ability users have to look at their entire IT operation holistically and on a single pane of glass is a great differentiator.

The IPO said that 60% of their new customers are landing with more than a single product, up from 15% just a year ago, and 40% of all customers use more than one product, up from 40% a year ago. That implies that: A – their new products are incredilby good, and B - they are very efficient in selling them.

They have a calendar fiscal year and in 2018 they grew revenue at 97% and they will probably come in at about 80% this year in spite of being distracted by the IPO. That’s a little behind Crowd and Zoom, the two superstocks, but not by much. They’ve had positive operating cash flow both of the last two years, at least, and their adjusted net loss was only about 5% of revenue.

This is a very incomplete summary and if you are interested I encourage you to look into it further on their website, and certainly read Bert’s article, as well as Alex Clayton’s. In fact, I found Alex Clayton’s long article and here is a little quote from his article, just to give you a taste.

Datadog was founded “on the premise that the old model of siloed developers and IT operations engineers is broken, and that legacy tools used for monitoring static on-premise architectures do not work in modern cloud or hybrid environments”. Their platform enables developers, operations and business teams to collaborate, build and improve software applications and understand business and user performance. Moreover, their product is self-serve in nature and can be easily installed in minutes. Datadog was also the first company to combine monitoring across infrastructure and applications as well as offering logging in one solution. In addition, this year they announced products including network performance monitoring and real user monitoring. It’s important to note that each of Datadog’s products is fully capable on a stand-alone-basis and customers can choose to deploy one or more of the products at once. When deployed together, the sum is greater than the parts as it offers customers a single pane of glass view across their entire technology stack.…

Okay, obviously I don’t understand the technology, but I understand a company that is pleasing its customers, is growing very rapidly, has easy to install, easy to sell, and well integrated products (with new ones being introduced), has almost all its revenue on subscription and recurring, has a net retention rate of 146% (which is about as high as it gets), is not burning cash, etc. What more could I ask for? Granted, it’s not cheap (why would you expect it to be cheap?)… I’ll take it.



A link to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially “How I Pick a Company to Invest In,” and “Why My Investing Criteria Have Changed,” and “Why It Really is Different.”


Obviously there have been some changes in my portfolio to come up with the cash for Coupa and Datadog. My end of the month looked like this:

**Alteryx 		22.0%**
**Zscaler		 	18.8%**

**Okta			14.8%**
**Mongo 		 	12.6%**

**Twilio			 8.6%**
**Zoom      		 8.3%**
**Crowdstrike		 7.2%**
**The Trade Desk	 5.8%**

**Elastic 		 1.9%**
**DataDog			 1.0%** 

And now (Monday afternoon), it looks like this (bunched by approximate size):

**Alteryx 		20.0%**

**Okta			15.5%**
**Zscaler		 	14.0%**

**Mongo 		 	 9.8%**

**DataDog			 8.2%**
**Crowdstrike		 8.0%**
**Zoom      		 7.9%**
**Twilio			 7.3%**

**Coupa			 5.3**
**The Trade Desk	         4.7%** 

So what happened:
Of course I sold out of my 1.9% Elastic position. Elastic has always been one of my lowest conviction stocks, and when I was looking for cash, I looked there first.

I bought an 8.2% position in DataDog and a 5.3% position in Coupa. Added a little today to each. Finished for now. I’ve written both of these up in the past few days.

I dropped Alteryx from 22% (which was too big compared to others) to 20%.

Zscaler dropped from an 18.8% position to a 14% position, mostly because I trimmed the position, but also because it didn’t rise as much as the rest of my portfolio. I trimmed because I decided that they were having to adjust their sales motion to sell to larger companies, and I’d rather have a smaller position at risk until I saw the results.

I sold a little Okta, but it grew in size anyway as the stock price had a growth spurt from $97.00 to $116.50 in one week!!!

I trimmed 1.8% from Mongo.

Sold all the rest of Twilio that I had in tax free accounts, for reasons described in my end of month summary. Will keep the rest.

I’ve added to Zoom but it’s percent has decreased slightly as it didn’t fall much in the meltdown, and subsequently hasn’t bounced back this week as much as others.

I continued to use TTD for cash, also for reasons that I wrote about in my end of the month summary. It’s now my smallest position.

Hope this helps,


PS – As for that bet a week ago that my portfolio would be up 10% before the end of the year, right now, in 5½ trading days, it’s up 14.8%. The averages have all broken even or less in that week, and you’ll notice that all the gloaters at our distress, and predictors of catastrophe for our stocks, who appeared at the very bottom, have disappeared again and no longer have anything to say.


As always thanks for the information. I haven’t purchased DDOG, not yet anyway. I also thought Bert’s write up was very well thought out.

So my question. In building up a 7% position, is that coming from a cash position held, or are you trimming others stocks and redistributing into DDOG.

I didn’t see a cash position in your last monthly write up, so always interested in what you may or may not be trimming.

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Let me tell you a bit about Datadog: It is a SaaS software company that leases subscriptions to software that monitor infrastructure, analyze application performance and provide log management (I don’t even know what log management means)

Taken from a few different websites, in summary:

  • A log file is a continuous and time stamped record of events and messages automatically generated by your IT systems and software applications.

  • A log file can be useful for a lot of different purposes. From developers who write code, to DevOps who are searching and fixing production issues, to system administrators who need to ensure everything’s running smoothly.

  • Logging is the act of collecting this data as an audit trail for root cause analysis as well as live stream of activity.

  • Log management is the approach taken to dealing with this large volume of log data continuously generated by nearly every computing device and software application.

  • With proper log management, you can search massive amounts of data quickly, pinpoint issues in real-time with custom views, create rules and alerts, and support the analysis and reporting you need.

  • Without proper log management, in the event of a security incident or operation outage, your teams do not have insight that allows them to quickly resolve the issue. This lack of visibility creates higher application latency and more system outages, which translates into poor customer experience and customer churn.



Taken from a few different websites, in summary:

One more website, my own!

My web developer and hosting operations were tiny compared popular websites and I still found it necessary to develop a log management system.

June 6, 2011
The Ultimate PHP Error Reporter

A visitor to one of my websites mentioned in passing that the contact form had given him an error. When pressed to give more details, none were forthcoming. It turned out that the contact form had developed a fatal error when the server was last updated four and a half months earlier. During all that time the contact form was unavaliable and who knows how many visitors were turned off by the malfunctioning website. This situation is unacceptable. Human errors do happen but we need tools to catch them in the shortest possible time. Webmasters and administrators need a proactive error reporting method. While writing the phpErrorReporter code I discovered another problem with the server (different website) that likely was also four and a half months old. This second error needs a different reporting function which is my next software project.…

The Error Reporter logs all pertinent errors and notifies of fatal errors in real time via email. Since the original version, The Ultimate PHP Error Reporter has gone through several bug fixes and upgrades. It has been invaluable in keeping my (and my clients’) websites operational.

That said, I believe that the TAM of developer based software products is much smaller than the TAM for more general purpose applications making them less interesting as investments. Simply, the market is important but not huge.

Denny Schlesinger


A log file is a continuous and time stamped record of events and messages automatically generated by your IT systems and software applications…

Thanks Brandon, your explanation was very helpful.


In terms of log file processing and analysis, Splunk has been Top Dog (pun intended) for many years.

Do people here think Datadog can take more than a bite away from Splunk?