Datadog earnings preview

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Datadog will be announcing earnings after the bell this Thursday, Feb. 11. I’m going to try to make an educated guess on what to expect. Remember that Datadog is an extremely sticky Application Performance Monitoring service, that helps companies troubleshoot and improve app performance issues, and often alerts them before their application crashes due to lack of memory or CPU.

On Jan. 26, I wrote that Azure’s 50% growth YoY would bode well for Datadog, because of the partnership they have with Microsoft: https://discussion.fool.com/azure-earnings-and-our-companies-347…

Since then, Google announced that GCP revenues grew 47%, and we know that Datadog also has a partnership with Google: https://investors.datadoghq.com/news-releases/news-release-d…

And then Amazon reported that AWS is now generating revenues at a $50B annualized run rate. This is by far the biggest cloud player, and we know that Datadog has been integrating itself deeper and deeper into AWS services like the Well Architected tool, containers, AWS Step Functions and AWS Outposts.

Datadog Revenue Estimates vs Actuals


          Forecast  Forecast    Actual    Actual
          Revenue   YoY Growth  Revenue   YoY Growth
3Q 2020   $144M     50%         $155M     61% 
4Q 2020   $163M     43%         ?         ?

So, 2 quarters ago, they beat forecasts by $11M, and grew revenues 61% rather than the forecasted (sandbagged) 50%. For 4Q, they are only forecasting $163M, which is only 43% growth YoY. But we know, and the market knows, that they’re sandbagging again. So I’m personally thinking that they should be able to grow sales at least 50% and hit a revenue number closer to $171M. I think the market would be disappointed with anything else.

Growth Catalysts
I think that many customers, when faced with the choice between Splunk and Datadog, are going with the latter. Datadog’s pricing and features are more attractive. Here’s a Gartner review of the two products, and you can see that Datadog has a 90% willingness to recommend score, vs Splunk’s 80%.

https://www.gartner.com/reviews/market/application-performan…

I wonder if this is a factor in Splunk reporting disappointing earnings in the latest quarter.

I also think that if the public cloud titans like Azure and GCP can grow revenues by around 50% to multiple billions, then single-purpose SaaS solutions that are integrated with them and partnered with them should be able to grow even more.

Here are some of the Datadog / AWS integration announcements I referred to above:

So, we’ll see.

-Ron

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Year over Year (quarterly):
87%
68%
61%
50% would be a concern. I realize this market is pandemic-constrained, but if there’s not a revenue increase Q-to-Q, I’ll be concerned. Discuss.

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Clarification: Percentage wise (YoY), I think 50% would be a disappointment.

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Thanks Ron,
I also think that if the public cloud titans like Azure and GCP can grow revenues by around 50% to multiple billions, then single-purpose SaaS solutions that are integrated with them and partnered with them should be able to grow even more

I couldn’t agree more. I’ll keep an eye on:

Saul edited a little-
Sequential Quarters
$08 million
$13 million
$13 million
$18 million
$17 million Q1, down $2 million because of Covid? This includes the last two weeks of March. I’m assuming they would have hit $19 million
$09 million Q2, short $11 million? Perhaps full pandemic panic?
$15 million Q3, they are almost back in line

wpr101-
Datadog’s Enterprise customers (ARR >$100k) account for 75% of their revenue. In Q419 this proportion was 70%, we can see that Datadog has been growing its Enterprise customer base more quickly than bringing in new logo. This can be seen in the numbers:

DBNER, New Logo & Cross-Selling

Revenue Growth in %
YoY% QoQ%
Q219 82% +19%
Q319 88% +15%
Q419 84% +19%
Q120 87% +15%
Q220 68% +7%
Q320 61% +11%
Hope we see acceleration again this Q

Enterprise customer (spend >$100k ARR)
YoY% QoQ%
Q219 89% +17%
Q319 93% +22%
Q419 89% +18%
Q120 89% +12%
Q220 71% +6%
Q320 52% +9%

I’ll be very happy with +11% this Q. I don’t expect 10%. We’ll see

Thanks Saul and wpr101.
Jason

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Year over Year (quarterly):
87%
68%
61%
50% would be a concern. I realize this market is pandemic-constrained, but if there’s not a revenue increase Q-to-Q, I’ll be concerned. Discuss.

**

Perhaps this is pointing out the obvious, but my sense is that DDOG’s response would be something like: Because our Q2 QoQ revenue decelerated markedly (6.71%, down from 15.49%), our YoY performance for the next few quarters, built from that Q2 baseline, will necessarily look like a YoY deceleration to 50%–until the company reaccelerates on a QoQ basis. Absent the 2Q QoQ dip (a trend which the company appears to believe has reversed), subsequent quarters would be building on top of a higher baseline and YoY comps would look better.

The CFO and CEO each said something along these lines during the Q3 call:

  • “Recall that we have a ratable SaaS model. Therefore, while Q3 usage growth was back to pre-COVID levels, the pressure experienced in Q2 can still be seen in our year-over-year comparisons for a number of quarters.”

  • “If you compare it to last year, so one thing to remember is we have a ratable SaaS model. So the growth we did forego in Q2 is going to be with us in the year-to-year comparison a bit.”

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Great info on this thread, thanks Ron for starting it with a great post. As a reminder to everyone, DDOG reports on Thursday (tomorrow) after the close (the call starts Thursday, February 11, 2021 at 5:00 p.m. Eastern Time but the announcement will likely come out a few minutes after the market close at 4:30p ET. Be looking for the Q4’20 Earnings press release to drop on the DDOG investor relations site shortly after 430p ET…)

Summarizing and adding my own 2 cents.

DDOG’s average revenue beat is around 8% and their last Q4 beat was 11%. My guess is that they will come in at or greater than $179M, representing a 10% beat or better.

Summarizing, given some of the Cloud Service Providers reported a nice quarter, it bodes well for DDOG.
• MSFT Azure revenue: up 50% YoY
• Google Cloud revenue: up 47% YoY

I agree with Ron’s thinking that if Azure and GCP can grow revenues around ~50% , then single-purpose SaaS monitoring products that are integrated and partnered with them, like DDOG should be able to grow more, say 55% to 60%.

I like to look at a company’s revenue “beat” history, to see if there’s a pattern.

Below is a look at DDOG’s past revenue guides (forecasts), actuals, % beat, YoY Growth, and Sequential (QoQ) revenue growth


**DDOG	Rev. guide   Act.Rev($M) % rev. beat	YoY Rev Growth	Seq. growth** 
Q3'19	N/A(IPO)	96	    N/A (IPO)	    88%	         N/A (IPO)
Q4'19	103	       114	      11%	    86%	           19%
Q1'20	119	       131	      10%	    87%	           15%
Q2'20	136	       140	       3%	    68%	            7%
Q3'20	145	       155	       7%	    61%	           11%
Q4'20E	163	       TBD	      TBD	    TBD	           TBD

Average revenue beat = 7.7%
Standard Deviation of rev beat = 3.6%

Then I like to look at some revenue modelling scenarios…


Q4 revenue modeling	
**DDOGQ4Revenue($M)  %revbeat   YoY Rev Growth  Seq.growth	  Notes**
     $163 	       0%	    43%	         5.2%	          baseline case:  0% beat	
     $172 	       6%	    51%	          11%	          rev = $172M for accel seq. growth	
     $175 	     7.7%	    54%	          13%	          average beat = 7.7%	
     $179 	      10%	    57%	          15%	          my guess what they'll come in at	
     $181 	      11%	    59%	          17%	          last q4 beat = 11%	
     $185 	      13%	    62%	          19%	          accel. YoY Rev Growth > 61%

So if actual Q4 revenue =$184M, DDOG would beat 61% YoY and be able to claim accelerating revenue growth, or a 13% beat ($20M beat, which, I think, would result in some nice continued appreciation and a positive signal.

That said, DDOG appreciated about 8% in the last week or so, so some of this might be getting rolled into the price, although DDOG was down a few % today. Should be an interesting call tomorrow at 5p EST.

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