DDOG BLOWOUT

$DDOG Q1 2022:

Rev $363M (83% yoy) vs est $337.77M

Ops CF $147.4M

FCF $129.9M

EPS $0.24 vs est. $0.11

Cash & equivalents $1.7B

Guidance:

Q2’22 EPS $0.13- $0.15 and Rev $376M -$380M

FY2022 EPS $0.70-$0.77, vs est 52 and Rev $1.6-1.62B vs est $1.53B

17% position here. Looking to trim some other holdings to add more $DDOG. Down about 2% pre market as I type

15 Likes

I’m little bit concerned about the guidance for Q2 - with 62% and the usual beat we should come in around 70% - 72%. This is lower than I expected. Anything else is top. What are your thought’s to this?

HannerRS,

I’m not worried myself.

Looking at their past quarterly revenues


        Q1    Q2   Q3   Q4
2020    131  140  154  177
2021    199  234  270  326
2022    363

The 83% growth this quarter is due to an easier comp to a soft 2021 Q1 that was at the tail of their previous revenue growth slowdown. It represents a two-year growth of 66%/year. (363/131=2.77=1.66^2)

If they come in at 70%+ next quarter instead of 80%, in my opinion, it is because of the more difficult comp. My interpretation could be naive but this is how I see it.

Unless there comes a challenger in the cloud monitoring space and/or we see cloud migration slowing down, I don’t see an issue with Datadog being one of the top position in my portfolio. They are riding on the growth of major cloud providers.

18 Likes

Ya same concern here

Q1 2022 upper rev guidance of $339M beaten by 7.08%
Q2 2022 upper rev guidance is $380M, if beat by 7.08% the revenue will be $407M which will be 74%.

Q1 2021 they beat by 6.1%
Q2 2021 they beat by 9.65%,

If we assume that they will beat Q2 2022 by 10% they will come at $418M which will be 79%.

If we look at the sequential growth

Q4 20 - 15%

Q1 21 - 12%
Q2 21 - 18%
Q3 21 - 16%
Q4 21 - 21%

Q1 22 - 11%
Q2 22 - 12% estimated if they beat by 7%

It’s an amazing quarter and forward guidance growth of 74% is amazing as well, but would love to understand the perspective from the board member do we consider this to be growth slowing down.
Going from 83% growth for 2 quarter in a row and then going to 74% is that good or bad.

I always struggle to figure out when do I say it is really slowing down vs when do I say this is good enough.

5 Likes

Thank you for your thoughts - still top conviction. Just want to explore every hints…

Awesome NRR still at >130%
Full year guide in line
Customers using multiple products growing
Pushing in security space with new products
Management confident
FCF at 36% - Wow!

So probably in isolation not a good indicator.

1 Like

It’s an amazing quarter and forward guidance growth of 74% is amazing as well, but would love to understand the perspective from the board member do we consider this to be growth slowing down.

===

This isn’t a knock on the person that wrote this, so please don’t take it that way.
I keep seeing this theme of, in my opinion, unrealistic growth expectations, especially as a company scales.

I have been knocking on DDOG for a while just on valuation - I just feel too much is baked in. My opinion, and have been wrong since about their IPO, so there’s that.

But in terms of numbers and execution, I am not sure who has been better in past few years.
ZM doesn’t count, imo, because so much of the demand was artificially created and pulled forward. Sure, DDOG probably got a covid/digital transformation bump, but I think that was more in stock price sentiment than in actual rev growth tied to pandemic.

No debt, quite a bit of cash, huge FCF, profitable, and growing at scale, while broadening their product set.

My only knock, outside of stock price, is I am still not quite sure how mission-critical they are yet. Monitoring vs managing. Monitoring vs prevention/remediation. Would like them to go buy SentinelOne or curious what other moves they can make to increase their optionality.

If they beat and raise rest of year, as normal, they finish at what…$1.7-1.8b?

Let’s say growth “slows” to 50% on average for the following 2 years after.
2023 about $2.7b
2024 about $4b

This is where they start looking like an entrenched ServiceNow type of company.
You can assume multiple compression as their growth rate slows, but I think NOW is a great comparable to track against, both in terms of revenue and mkt cap and both being in similar Enterprise SaaS space.

If the world was made up of nothing but well-executing SaaS companies, they can’t ALL grow at 50% forever, because there is still a finite amount of realistic TAM (and client budgets) to go after. So I think the better approach is not to ask “are they slowing from 80% to 74% and is that bad” but rather “who else is growing this fast, at this size, and still has this much more room to continue to grow at a high rate for years?”.

Some company will come along and be the next ZM or next DDOG, but right now, not sure who else out there I would take. SNOW is complicated, BILL seems to be in a more competitive situation, MNDY definitely isn’t mission critical. Probably, the next DDOG hasn’t gone public yet.

Dreamer

53 Likes

When growth slows - which is inevitable for literally every company - it ultimately needs to be offset by improved cash flows and profits. DDOG is certainly executing in that respect.

How that meets anyone’s buy/sell/hold/allocation criteria is where individual conviction and style come in. It’s too bad DDOG’s solid report is coming on a day the market has once again decided to crater across the board.

46 Likes

I posted after DDOG earnings release and one minute before their Conference Call. In answer to some comments on this thread I’ll repost here.

This is the data for 2020, 2021 and estimates for Q2-4 2022:

         Q1/20   Q2/20   Q3/20   Q4/20             Q1/21   Q2/21   Q3/21   Q4/21              

Revenue    131     140     155     178             199      234     270     326               
yoy(%)     87%     68%     61%     56%             51%      67%     75%     84%               

Q1/22   Q2/22   Q3/22   Q4/22 
363     424     475     546
83%      81%    75%     67%

This above decline in revenue growth for 2022 would Still present an increase in YoY

            2019       2020        2021       2022E
Revenue.    363        603        1,029       1,808
YoY         83%        **66%**        **70%**         **76%**

(Revenue for all of 2019 being the same for this quarter…not a typo)

Remember 2020 was the drop off due to COVID. Will Datadog return to 80% annualized growth rates? I’m seeing three points make a trend toward yes.

Also,
I’m happy to maintain my 17% position seeing also that the customer count, of those with ARR over +100k$, increase for this quarter over this consistent prior growth.

Best

Jason

26 Likes

This is the data for 2020, 2021 and estimates for Q2-4 2022:


         Q1/20   Q2/20   Q3/20   Q4/20             Q1/21   Q2/21   Q3/21   Q4/21              

Revenue    131     140     155     178             199      234     270     326               
yoy(%)     87%     68%     61%     56%             51%      67%     75%     84%               

Q1/22   Q2/22   Q3/22   Q4/22 
363     424     475     546
83%      81%    75%     67%

Jason -

Could you please show your work for $424 in Q2? I would have that as an 11.6% beat over the $380 top end guide. That seems extreme compared to 7.1%, (an unexpected) 11.7%, 9.1%, and 9.6% the last four quarters. Not to mention the $61M raw sequential revenue add needed to hit $424 would be DDOG’s largest by a wide margin. Even giving them the same 7.1% beat (which is no guarantee) would make Q2 $407. $407 would put growth at 74% and not 81%, which would obviously affect any projections from there.

Unless my math is wrong, this looks like the continuation of a trend I commented on here: https://discussion.fool.com/as-someone-who-has-been-one-of-those…. The whole purpose of modeling is to estimate a reasonable band of outcomes. Starting off too aggressively only makes things less likely the further out you go. I’m curious to hear why you think $424 is a reasonable placeholder.

Personally, I find posts discussing pre-earnings expectations for current quarters useful. However, anything much beyond that relies too heavily on inputs we can’t possibly know.

21 Likes

Yes, your correct. The point being made was that everyone has different future projections about % beat. Before making an argument I wanted to lay a numerical framework on which anyone can place there bets in on how Datadog will eventually show up.

The following is my take:
So the real drop in revenue growth numbers, due to COVID was likely 20% for all of 2020. Getting growth back from a smaller base took a year and YoY comparable numbers get tougher now. Q2 with average beat looks like 71% growth YoY and the comparable numbers get more difficult each quarter; but IMO, 2022 compared to 2021 is likely much better, from a tailwind point of reference rather than just when comparing to a smaller base Revenue number, than when 2021 went up against 2020 (I don’t see Datadog going up against law of large numbers…I think Datadog is sufficiently scalable and the TAM is growing.).

Thanks for the discussion,

Jason

3 Likes

I think from an objective standpoint (if there even is such a thing here), there’s no reason to sell DDOG today. Even though DDOG ‘missed’ my own expectations for next quarter’s revenue guide, well, guess what, it’s current stock price and current stock valuation has been crushed to the point that it accurately reflects today’s actual results. I’d certainly be speaking from a different view if DDOG’s market price closed yesterday at a price of $180, but at $110 or so today, this is quite fair for what we’re getting: FCF margin of 35.8%, total customer growth still at 30%, DBNRR>130%, a durable fast growth pathway with a currently unbroken cloud tailwind thesis, all at over $1.4B run rate.

This is still a company offering a critical infrastructure software product, as depicted on today’s earnings call:

Let’s discuss some of our wins in Q1. First, we signed an 8-figure upsell with a next-gen fintech company which was our largest ever deal on an ARR basis. This customer is experiencing explosive growth in demand for its products, and availability and performance of their system is critical to avoid loss of revenue. These customers started with us 3 years ago with just Infrastructure Monitoring, and its expansion now includes 6 of our products.

This is still a company whose product allows its customers to cut down on even more expensive technical staffing:

…as they have expanded with Datadog, they have been able to cut the number of engineers who maintain homegrown and print solutions in half and reassign engineers to other products to work in the organization…we had a 6-figure land with a major U.S. hotel company. This company lost half of its engineering team during COVID and needed to use its staff more efficiently. At the same time, it was embarking on an AWS migration and its existing tools were not providing the visibility it needed.

This is still a company offering best-in-class observability products with no comparable competitor:

…we signed a 7-figure upsell with a leading payment company. Earlier this year, these customers open source logging tool went down making them blind, but they were able to regain visibility by getting Datadog log management up and running within a few hours of that crash…
…we had a 7-figure land with a major European car manufacturer. This customer was frustrated with its existing monitoring tools, which left them with limited visibility into incidents sometimes impacting millions of users globally. As they were trialing Datadog, they were able to solve within minutes issue that used to take them days…

And compared to other SaaS products out there that are not necessarily ‘best’ in their class (like BILL, which has a gross retention rate of 85%), DDOG continues to prove their "dollar-based gross retention rate continues to be in the mid- to high 90s".

I’ve changed my portfolio a lot over the last few months, yet DDOG will remain my largest portfolio position, followed by good sized weights in SNOW, ZS, CRWD, and smaller allocations into MDB/BILL/NET/S

45 Likes

I’m not sure whether anyone else has noticed but there is a repeating pattern where the 1st quarter always has lower sequential growth than the 4th quarter preceding it, and then sequential growth has grown in the 2nd quarter (except in the famous covid quarter in 2020), so I probably wouldn’t make too much out of a lower sequential growth this quarter.

Saul

58 Likes

From a thread on SaaS investing on the Berkshire Board. Saul often says that SaaS investors need to stay focused on business performance and don’t obsess too much about entry price. The price will take care of itself if the business continues to perform. However, the growth assumptions necessary to support high entry prices might mean that future outcomes might work out quite well for the company, and quite poorly for the investor. If you are interested in questions of valuing SaaS stocks, Foolish Rob provides a good example of how to think about SaaS speculations from a value perspective:

https://discussion.fool.com/ot-valuing-saas-stocks-more-interest…

The problem I see is that the range of possible futures for Datadog … are outcomes that are simply good for the business (rather than very/extremely good) but aren’t good for the investor.

For example, if DDOG goes on to earn $10 billion ten years from now, that would be an extremely good business outcome. It would mean the company has grown to where Oracle is today. In that scenario, with a 25 P/E, the company would be worth $250 billion, which would be more than a 10-bagger from today, at least 26% annualized for the investor.

But if this company earns only $1 billion ten years from now, on a 25% net margin, that would also be a good business outcome. It would mean the company has become highly profitable, with sales of $4 billion, compared to being highly unprofitable with only $874 million in TTM sales. That would translate to 16% annualized revenue growth over the coming decade along with a big pivot to profitability. But at that same 25 P/E, it would only be worth $25 billion, less than 20% improvement from today’s prices after the big decline, or less than 2% annualized as an investment.

So the range of possible futures are something like this:
1. Extremely good business outcome, very good investing outcome
2. Good business outcome, inadequate investing outcome
3. Poor business outcome, permanent loss of capital

To put this in price terms, if you think option 1 is very likely, you would be very willing to pay the current price against a $21 billion market cap. The mungofitch model would say you could actually pay up to 5 times the current price and do well. (That model says you can pay, today, up to 10x the earnings that you expect 10 years from now, so if we pencil in $10 billion for those earnings, you’d value the biz today at $100 billion, or nearly 5x the current $21 billion).

But, if you want to require a higher margin of safety so that you get an acceptable return even if option 2 plays out, then you’d pay no more than $10 billion for the company, or half current prices.

Lastly, if you think option 3 is a possibility …, you either avoid it completely until you have reason to believe differently, or at least, you demand a much lower price.

You might also want to discount all of the above scenarios to account for the steady dilution - it looks like shares outstanding have risen from 500 million to 650 million in three years, or about 9-10% per year.

Rob

13 Likes

Datadog at $4B in sales 10 years from now doesn’t make any sense. extremely low probability

1 Like

Ha :slight_smile:
That’s exactly what I thought when I read it.

“…compared to being highly unprofitable with only $874 million in TTM sales…”

DDOG is “highly unprofitable?” That’s news to me:)

Non-gaap profit margin: 23% up from 21%, up from 16%.

Gaap profit margin is now 2.75% up from 2.2%.

People should stick to their own area of interest, no? :slight_smile:

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“…compared to being highly unprofitable with only $874 million in TTM sales…”

DDOG is “highly unprofitable?” That’s news to me:)

I wasn’t talking about DDOG. I never even mentioned it. I was talking about MDB. It was a response to a few other posts about MDB which I quoted as prelude, so it wasn’t unclear. Philip deleted those first few lines that mentioned MDB, then changed some other words to make it look like I was talking about DataDog.

I’m guessing he just got confused since the thread later turned to DDOG and maybe he was just trying to add clarification to the piece he quoted. Instead, the edits made the post look like nonsense.

Anyway, here’s a link to my original post about MDB.

https://discussion.fool.com/you-are-assuming-mdb-can-grow-at-ver…

Rob

4 Likes