DDOG Earnings Call & Analyst Q/A - My Notes

8/5/2021 7:00 AM Central

Q Please provide color on large customer growth
A Still rely on land and expand and upselling

Q Hiring Plans?
A Aggressive hiring plans and quota expansion.

Q What drives expansion?
A Size of networks to be monitored and customer size

Q How much of a driver has APM been?
A Significant. APM and log are neck and neck in terms of adoption and maturity.

Q Talk through overages in 1st half of last year. How is usage and consumption growing now.
A During Q2 of last year, they had flattening. Now since Q3 of last year, they’re back on track which is reflective of cloud migration and cloud projects. Usage growth was balanced .

Q When you gave guidance, can you give a sense for how much of the sequential increase is due to headcount and travel?
A Not having travel, has some volatility. Very aggressive hiring plans, which takes some time, yet they expect accelerated hiring growth in the 2nd half of the year.

Q What are the sales cycles looking like and how do you do the kind of hiring that you do. How does this get DDOG into the upper end of hires this as you grow?
A At this point, not planning any major changes in their sales process. On the opening of the economy, the main thing they’re working on is to work on the platform to add more product options while simultaneously growing their sales team.

Q Pricing environment, how do you feel re: your pricing strategy and do you think you’ll be able to increase prices in the future?
A Thinking long term, they hope to increase pricing to align with the value their customers receive from their products.

Q Are you seeing more legacy observability replacements?
A On-prem converting to the cloud is what they’re mainly replacing.

Q Building security of solutions, how are you building out the sales motion there?
A Sales motion is built on observability, and relying on selling security to existing customers.

Q Higher level of multi-year commitments. What drove that?
A Correlation to larger customers investing to DDOG, which is coming from the customers and not DDOG, as a factor of committing to DDOG as a longer term platform they need to most effectively run their business.

Q Accelerated R&D and impact on sales
A Still think they are very, very early and lots of runway. In terms of go to market, they’ll see their first increased number of needs to increase go to market (sales) spend as they continue to add product modules.

Q New customer growth, are they ramping faster than they were 2 years ago?
A Yes in terms of number of large customer adds.

Q As you push more into security, what are the lessons-learned that can be taken from dev ops?
A How to reduce friction is first part. 2nd part is that buyers are different since they’re larger.

Q How are you keeping your sales force and partners up to speed re: your value proposition?
A IT’s a major focus to scale their sales team.

Q What are your differentiators in posture management and security protection, everyone is chasing this.
A it shows up automatically, and there’s nothing to be done by their customers, which is a major differentiator.

Q Need to change prices at some point to combat commoditizing their offering and how does this impact your pricing?
A This has not had an impact on them

Q Legacy replacement, what do you need to do to enable this?
A Right now, still early in replacing non-cloud equipment w/ customers. Today customers want to standardize.

Q RE: Cloud security platform, what other options will there be in the future?
A Thinking about how this can be packaged most effectively.

Q Partnership expansions –please discuss.
A Getting more and more partnerships in the cloud, working on ways to make it easy to deploy DDOG w/ them.

Q Going to CIDC, whole new market. Talk about how big of an opportunity is this re: option ability?
A It’s very early in the opportunity now. It pushes the boundary of where they operate.

Q Is DBNRR trending up or down from the 130% that has been quoted in this quarter and in previous quarters?
A Increase from 130% quoted in previous quarters. Strong sales and continued uptick of adoption and flattening from previous Q2 has created an increase.


Record number of net and gross new logo lands this quarter. New logo wins do not immediately generate revenue.

Big wins
Had an 8 figure upsell with an existing customer
7 figure upsell w/ European ecommerce company
7 figure upsell w/ a large accounting firm
6 figure upsell
7 figure land

80% Y/Y RPO growth
Revenue is a better indicator of their growth than RPO and ARR

Large customers provide +80% of total revenue
DBNRR is over 130%
78% of customers are using 2 or more modules
28% of customers are using 4 or more modules, up from 15%
Announced 2nd and 3rd building block of their security offerings

Y/Y decrease in margin is due to investments, and they expect their margins to be consistent with past numbers (north of +80%).
Not striving for operating margins, rather they’re attempting to take advantage of maximizing growth.

Addressing a very large market and executing well.
Guidance notes, planning to continue to invest heavily in R&D and Go To Market.

DDOG now has 11 products to offer their customers.

DDOG’s Dash user conference will be held in late October

Oliver Pommel, CEO has a thick French accent, which made it difficult to catch every exact word he said.

Hope this is helpful information. Thank you to all who make this board the unique and special place it is and has become.



Great notes, thanks!

80% Y/Y RPO growth
Revenue is a better indicator of their growth than RPO and ARR

Just thought I’d add some detail here. RPO was up 103% year-over-year. Current RPO (RPO expected to be realized within a year) was up 80%.

Here’s the conference call snippet:

Remaining performance obligations, or RPO, was $583 million, up 103% year-over-year, driven by strong sales activity and increased contract duration. The increase in contract duration was driven by a higher mix of annual and multiyear commitments relative to the year-ago quarter. As a reminder, multiyear commitments are built annually and we do not incentivize our sales force towards multiyear deals. Current RPO growth was also strong at over 80% year-over-year. I should note that we continue to believe revenue is a better indicator of our business trends than billings and RPO as those can fluctuate relative to revenue based on the timing of invoicing and the duration of customer contracts.



Interesting response on the conference call when Olivier Pomel was asked if growth could further accelerate with the continued opening of the economy:

On the question on the opening of the economy, I mean, look, we – what’s interesting to us is that it looks like the – we’re back to the way the world would move into the cloud more or less before the pandemic. And we don’t know if things can go any faster. There seems to be some – there was a very steady historical trend for us there and we’re back to that steady historical trend, so we’re happy with that. So the main thing that we’re working on right now to maintain long-term growth is make sure that we keep building on the platform, so we can add more products, cover the full – solve the full problem or increasingly large part of the problem for our customers, while at the same time, scaling the go-to-market teams so we can be in all of the conversations everywhere in the world for our customer segments. And we still have quite a bit of work to do in order to achieve that.



A couple more tidbits I liked:

Datadog has a practice of not giving a precise NRR figure but does continue to say its above 130. Sometimes when asked or sometimes proactively, management will give more color on the conference call. On this call they said it’s trending up:

Yes, we won’t give you a number but help you a little bit in trends. Yes, I think that we said the combination of the strong sales and the continued uptick from both use of more products on the user’s side and adoption of products, combined with the compare from the flattening in the second quarter, has resulted in the point in time metrics there increasing in the quarter.

When asked about sales models, Olivier Pomel pointed out that they’re exploring alternative ones, since the current revenue model, which is largely based on data usage, can’t scale exponentially like data will:

when you think long term, the – it’s almost a given that there will need to be a different way of charging for some of the – for capturing some of the value provided to customers. It can’t just be attached to the straight volumes of data that are being exchanged because those volumes of data are exploding exponentially while our customers’ revenues are not going to explode exponentially. And so that’s one thing that we’re working on with all of our products. We have this denomination for one of our products, Logging without Limits, which is basically a way to align the value customers get with the price they pay and give them leverage for that and make sure that we keep unbundling things on our end. So we would give them the power to do that.