Thank you all for sharing your thoughts on DDOG!
I don’t have much to add on the numbers, but would like to highlight some additional thoughts and takeaways from the CC.
#1 Strong R&D and Product Focus:
- DDOG added an insane amount of 18 (!!) products to their portfolio. I can also see that their R&D spend remains at the same high level. And I like how they are adding new land & expand baits left and right of their core focus. This gives them a great chance to land new customers in adjacent areas and then funnel them trough to expand their usage of additional DDOG modules. Some highlights from Dash:
- Cloud Cost Management : Cloud Cost Management allows stakeholders to analyze cost data alongside infrastructure and application telemetry, and it also shows them how each team, service, and application contributes to overall cloud spend. à I think this is a really nice add in times like these and also appeals to a new audience and presents a nice “land” opportunity
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CoScreen : Datadog is launching CoScreen, a remote collaboration tool that enables users to seamlessly merge their work environments by creating virtual meetings that use voice and video chat and interactive screen sharing. à Reminds me a bit of Steam
I am pretty sure the dev community loves this, and it is a nice addition to the core products and helps companies break silos - Enhanced testing capabilities (e.g., Continuous Testing, Intelligent TestRunner) that help R&D teams move the testing “left”, which means it will be more deeply integrated into early development cycles and therefore, issues can be found and fixed earlier. Nice!
- New Cloud & Application Security products (e.g., Cloud Security Management, Sensitive Data Scanner for APM and RUM). I think the latter can also nicely resonate in regions with strong data and compliance regulations, like Europe with GDPR.
- Automation capabilities, e.g., Workflow Automation à What’s there to say, everyone loves automation!
- Add ons in terms of Digital Experience Management. I’d specifically like to highlight Heatmaps, a tool that provides you with an aggregated view of how users interact with specific pages of your website or application by visually highlighting areas of that page at different levels of intensity based on user clicks. Let’s say you want to test whether any elements on a page are preventing users from discovering your main revenue-generating buttons and links by watching Session Replays. I find that particularly interesting, because it unlocks entirely new audiences and use cases ranging into Marketing and collaboration between Frontend Devs and Marketeers. Almost like Hotjar, it seems. Can be another nice vehicle to land new opportunities
- I love that they added a dev certificate — this can be a nice community growth catalyst in an engaged dev advocate community
- Acquired cloudcraft, a company to provide real-time cloud architecture visualization and design capabilities to help organizations with their cloud health, configuration and cost decisions. I think this is interesting, because it is a tool for cloud architects to map cloud infrastructure and migration, so I imagine this is a nice land & expand product for customers who are just getting started on the cloud (top of cloud funnel, if you want) and are very eager to ramp up: But when you look at the other customers, the ones that are earlier in their cloud migration, they are actually not slowing down, and we see the same urgency and eagerness for them to keep scaling and keep moving into the cloud. And that’s also where the bulk of our opportunities lies. Though, in full disclosure, DDOG expects It’s an immaterial amount of revenues relative to our total. Still, like it strategically
#2 Customers love their product
- Strong trend and increase of customers adding 2+, 4+, and 6+ product modules
- DBNRR remains unchanged at 130+ % which is great, especially considering the current environment
- They see solid number of ARR and new logos added from large customers, and also claim to have a robust pipeline going forward. Since they are usage-based, and it takes customers some time to get ramped up, some of the revenue will only materialize a few months down the road, so I hope to see the effects of new logos and large customer add in the next quarters
- They are still also seeing expansion into new products in existing customers and very low levels of churn, which indicates for me that their product is really core to their customers’ cloud transformation: Regardless of the macroeconomic environment, our customers still need to serve their clients, and moving to the cloud enables better service and cost savings against people intensive or on-premise technology based offerings
#3 Comments on Cloud migration & strategy
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… all of our products meaningfully outperforming the growth of the large cloud providers. The weak reports from the hyperscalers did not materialize accordingly for DDOG. DDOG is also not at its top game but seems less negatively impacted due to their strong products and their focus on customers who are not fully scaled into the cloud yet and don’t want to slow down, see this comment:
- But when you look at the other customers, the ones that are earlier in their cloud migration, they are actually not slowing down, and we see the same urgency and eagerness for them to keep scaling and keep moving into the cloud. And that’s also where the bulk of our opportunities.
- Very interesting: Billing to customers who use a lot of different products: DDOG provides them with a kind of credit, so they can buy these credits and use them flexibly across the products. This makes it easier for customers to expand on new products and gives them flexibility to adapt usage as they need, without pre-committing to certain usage buckets by products, when they cannot really know yet. Very smart, as I think this can prevent committing to conservative usage to lack of flexibility on how that usage distributes across products
- Nice add: Added Amazon Web Services (AWS) Security, Networking and Retail competencies, so they have in total 9 certificates and are the leading observability provider in that regard. This makes them very attractive for a wide range of industries
Bringing it all together
I think, despite slowed growth right now, DDOG is still a top investment and I feel comfortable holding it as one of my top positions. Their powerful product in conjunction with their land & expand model, high investments in R&D, solid cash and strong cloud migration tailwinds are compelling enough for me to sit through some tough-ish quarters.
They are acting really smart in continuously adding relevant (and adjacent) product modules that can be sold to existing customers, as well as unlock entirely new audiences to land new opportunities. Since they describe a lot of potential with customers earlier on in the cloud migration, they are adding a lot of relevant products and keep seeing momentum there, as well as existing customers still adding lot of new product modules. Plus: They make it easy for customers to add and pay for many modules, see billing comment.
Besides, growth is still high in terms of absolute YoY growth (and so is the absolute revenue, cash, and gross margin) and I hope that next year, easy comps and hopefully an improving macro environment will make our DDOG positions look happier again.
Overall, despite prudent guidance, they seem quite bullish, still invest aggressively in R&D and landing and expanding their rich product set to new large customers and logos (I am glad that large customer growth is still intact). I will, however, take a close look a large customer and revenue growth in the time to come to make sure they are not actually slowing down due to other reasons than macro.
Best & happy afternoon!
Lisa