Here is how this quarter went versus my prior expectations:
- Reporting Fiscal Q3 2023 on 11/7/23 before the market opens.
- Revenue expectation: $533M (4.7% QoQ, 22% YoY), assuming a 2% beat.
—> They managed an incredible $547.5M (7.5% QoQ, 25.4% YoY), beating their guide by 4.7%! Wow, especially if you consider the seasonal headwind they had this Q!
- Q4 new revenue guide: $562M (5.5% QoQ, 20% YoY) which I would interpret as $573M (7.5% QoQ, 22% YoY) assuming a QoQ re-acceleration to reach more than $60M net new revenue in 2H23.
—> They guided for $566M, which, if they can beat this again by a similar percentage as this Q3’s revenue would be totally amazing. They even increased their FY guide by 2.4% at the midpoint!
- My Q2 revenue expectation implies about $24M raw sequential revenue increase.
—> They managed $38M net new revenue. With that they should easily manage the $60M net new revenue in the second half of the FY, which I was dreaming about.
- I would like to see QoQ customer growth stabilize in both cohorts while continued multi-product adoption progress.
—> I was just hoping for stabilization in QoQ customer growth rates, because seasonally they tend not to accelerate from Q2 to Q3, but they managed just that! Accelerating customer growth to 2.7% QoQ, up from 2.4% and accelerating large customers (which make up 86% of revenue) to 4.7% QoQ, up from 2.7% QoQ. Another wow!
- I would like to see NRR >120%.
—> NRR dropped to below 120%. While this is a miss in my book, I am least concerned about this metric since it is, as I mentioned many times, a lagging metric.
- I would like to see stable profitability margins.
—> given their recent profitability margin progress, I would have been just happy with steady margins, but look, they even improved here significantly: operating margin grew to 24%, up from 21% last Q and net margin improved to 29%, up from 25% last Q. FCF margin dropped to 25%, from 28% last Q, but that 28% last Q was what I would call a positive outlier; it is up from 15% last Q3! So again amazing progress here.
- I would like to see high single-digit RPO QoQ percentage growth.
—> RPO grew an incredible 16% QoQ, up from 9.6% in Q2 and 7.5% in Q1, again significantly exceeding my expectations. Billings performed similar: up 16.7% QoQ, up from 1.8% in Q2 and -4.7% in Q1.
- Detailed thoughts: Ben’s Portfolio update end of August 2023
—> Going into this earnings season I felt my large Datadog position was my riskiest bet of all. I’d say it payed off. I am totally blown away by these results and from the bits and pieces I listened to from the earrings call so far, it sounds like their consumption is going to continue to improve from here. What a feat …