Reading through the recent long discussion on Data Dog (DDOG), Elastic (ESTC), and MongoDB (MDB) has been very interesting. We all know the numbers by now and I won’t repeat them. I want to instead offer a few bits of perspective from outside the discussion combined with a little bit of my own personal experience.
MDB: My experience as a user
I am a software engineer by trade. While I have retired from that profession, I do still sometimes take on a small project or develop an app for my own personal use. As I am invested in MDB I thought I would give it a try in a personal project and compare other available options. My use case is trivial compared to the capabilities of the database: a simple data store for a music player.
Conclusion: MongoDB is amazing to work with and has no viable direct alternative.
There are many NoSQL database options available. I looked through the capabilities of every option I could find and created tests for working with a few of the most promising. For the type of capability MongoDB offers (document based NoSQL database), I found no other option which I felt comes close to the capabilities of MongoDB. I did find a few which were better in specific use cases, however even then those alternatives often did not offer the ability to scale up to large size as is possible with MongoDB. MongoDB is not perfect. The interface is at times irritating. Yet I don’t see any realistic alternative I would choose if I needed a large scale document based NoSQL database.
As an investor, I find this hopeful for my investment. It helps me understand that there is good reason MongoDB customers love the database and why there is a lot of room in the industry to attract new customers. It also gives me faith that customers are not going to be leaving MongoDB any time soon.
I see a very real possibility for MDB becoming an industry juggernaut on par with CSCO.
My one concern is that MDB does not seem concerned about moving towards profitability as is shown by the negative FCF which is getting worse (as pointed out by GauchoChris looking at TTM FCF). This will probably have me reducing my investment though not selling out in the near future.
ESTC: Not so compelling
I also investigated Elastic (ESTC) from a software engineer’s perspective. Note that I did not use their product so take this with a grain of salt. It seems to me there is nothing uniquely compelling about Elastic Search comparable to what I encountered right away with MongoDB. Why couldn’t a company replace ESTC’s search engine with a different product? I don’t see the path to becoming an industry juggernaut as I do for MDB. I also distrust the pure open source model as an investment.
I am not invested in ESTC and am happy with that decision. Maybe it will be a great investment but I am not comfortable holding it it my own portfolio.
DDOG: A viral technology?
No personal evaluation of DDOG as I have no use case yet I felt I had to understand why the company has such a high valuation. So I looked at everything I could find on their web site.
My conclusion: DataDog has gone viral.
My (perhaps naïve) take on what DataDog offers the world:
The internet is now filled with large scale cloud based applications and networks of services working together. While a lot of information on these applications and services is available, viewing them all in a way that gives a clear picture of what is happening has become anywhere from challenging to impossible because the data is coming in from so many diverse locations with no unified way of visualizing what is happening. In short, information overload. DataDog to the rescue. Large quantities of data are easily organized into a variety of views that are easily understood both from a system wide perspective and in the individual details.
It seems to me that there has been such a pent up need for what DataDog offers, that the technology has gone viral.
As an investor, I like everything about DataDog except the valuation. I am reminded of the quote by Warren Buffett: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” I am very reassured that the discussions on this board are not universally in favor of DDOG. Yet I am concerned that there is so much excitement about DDOG that the price will at some point crash once the novelty has worn off (in the way of everything viral that gets forgotten). I have no clue when that will happen or how far the price will fall, yet I am concerned enough over that happening that I will likely limit my investment in DDOG more than I might otherwise given the apparent prospects for the company.