I had a couple of other notes that are maybe worth mentioning
This quarter they guided for $119 million at the top end or 70% growth and ended up with $131,248 or 87% revenue growth. An acceleration of revenue from last quarter’s 85% growth. Going back in quarters the rev growth looks like this 87 - 85 - 88 - 82 - 76.
And then to dig in a little bit more, adj gross margin improved yoy from 73% to 80%. And sequentially from 78%.
because they have had accelerating revenue in a few quarters AND their margins are improving … their gross profit this quarter improved 105% yoy. Compare that to revenue growth of 87%. To say that again, revenue growth was 87% but because they have accelerating revenue growth COMBINED with improving margins their gross profit improved 105% yoy
There were a lot of questions from the analysts on the call about potential loss of revenue due to COVID. I think it came up 5 or 6 times, almost every analyst.
They only guided to 63% revenue growth for Q2 at the high end
I went through below here and bolded all these questions and answers from Olivier and the CFO. You can see how they had to repeat themselves a few times
They are basically saying “we are being prudent”
- From Olivier Pomel opening statements
We estimate that less than 10% of our ARR comes from categories most negatively impacted by COVID such as hospitality and travel airlines and in personal entertainment. On the other hand we also have exposure to categories that have experienced increasing traffic such as streaming media gaming food delivery e-commerce and collaboration.
- Now, turning to what we’ve seen in March and April. First of all, the COVID escalation happened late enough in the first quarter to not materially affect our financial results. Throughout the quarter, we saw consumption continue to increase across the platform and growth of the number of hosts, containers metrics traces and logs, for example, have remained consistent with historical trends.
We started to see some negative effects in impacted industries such as travel, hospitality and airlines. But we’ve also seen substantially increased usage from other categories such as streaming media, gaming, food delivery and collaboration, as these customers scaled up their operations in this environment.
As far as Q2 goals, our pipeline is robust and relatively consistent with prior quarters, but it is still too early to know the impact COVID could have on the road. Because of that and given the macro uncertainty, it is prudent to expect delay of some new cloud migration projects as well as some impact on churn. As David will discuss, the effect of COVID has been incorporated in our guidance.
I would now like to turn to our outlook for the second quarter and the full year 2020. Given our recurring revenue model, we have not yet felt the effect of COVID-19 on our top line results. It is early in the quarter and we expect that we will see some deal slippage particularly in new logos. We also expect that despite a relatively high net retention rate, we may see some downward pressure in net retention rate in the next two quarters.
As Olivier mentioned, the usage of some client surged in March and have adjusted somewhat in April, but remain above pre-COVID levels. It is too soon to know how usage will trend for the remainder of the quarter. Therefore, we believe it is prudent to expect some impact from the above effects most likely in Q2 and Q3 and potentially throughout the rest of the year given our ratable model. And as a result, we have incorporated this into our guidance.
I had two questions, one more of a short-term – shorter-term question and one more of a longer-term question for Olivier. To start with the short term question, I guess what I’m trying to understand is, from what you guys have seen in March and through April and now in early May, the – what’s the sort of the net impact in terms of what you’re seeing in the business from the customers that are more impacted the sort of less than 10% of ARR customer – the spending trends in those customers that are less than 10% of ARR versus some of the increased spending you’re seeing in some of the other verticals. So does that sort of net out to neutral in terms of your business plans for the year? Or is it – are you seeing a net positive effect?
So I’ll answer that. So far, what we see in March, April is that, we see growth. April actually is a robust month. And we – some customers are impacted and are going slower. Some customers have been scaling up. We have some questions on our end as we discussed on the call on which parts of the scale-ups are going to normalize in the future since we’ve seen some customers that scrambled late in Q1 and then in April to reorganize the operations and may normalize after that.
I would say it’s too early to tell where everything nets up. I would think, we need to be prudent in estimating what could happen over the next couple of quarters. But so far from what we can see, we see a lot more reliance on online. We see actually a success story around the cloud. The cloud scaled up. All these companies have been able to move their operations and scale their operations. And we see more investment going on that side. So that’s the story so far.
Thank you. The – if you – you talked about the net retention and the assumptions that you’re making as the crisis kind of continues. Can you remind us – if there’s going to be more churn then it’s probably going to be more in the SMB space. Can you talk a little bit about your exposure there and what you’re seeing so far? It’s my first question.
Yes. I’ll about SMB and maybe David can talk about the billing mix. So we actually – our ARR is as we discussed before is what split evenly between enterprise mid-market and SMB. But even within SMB we – most of that revenue comes from companies that are on the larger side and on very solid footing financially.
Some of them are publicly traded and tend to be closer to the 1000-employee limit there. We mentioned on the call that less than 50% [Later changed by the Company to 15%] of our revenue came from companies that are on the smaller side which is less than 100 employees.
If you look at our SMB customers, they’re very diverse. And we’re actually less exposed on the SMB side to some of the higher-risk categories around COVID. And so far we haven’t seen a big change in trends. I mean, we did see a tiny uptick in churn in SMBs, but it’s actually consistent with levels we’ve seen just a few quarters ago. So there’s nothing out of the ordinary. And at the same time, we saw an increase of net retention for that same cohort of SMBs. So it has nothing conclusive there. We don’t see anything that we didn’t see before.
Now when we try to guide for the future, we have to try and guess where our exposure is going to be and what can be weaker. We’ll have to guess that the SMBs are going to feel more pain and are going to be where we’ll see more churn. And so that’s what we’ve incorporated in our guidance.
Great. Thanks so much. Congratulations on a strong start to the year. And as well, I hope everybody at Datadog and everyone listening is doing okay these days. My first question I wanted to follow up on what Sanjit has asked and I think Raimo is alluding to as well. Just trying to understand the impact on the business from COVID. Specifically, if I hear your comments about the potential for deal slippage obviously with more pressure on new logo business and the downward pressure that you might see on net expansion to what extent are you seeing it coming versus just preparing for it? And maybe, if you could perhaps can you compare and contrast consumption trends versus pipeline progression and the conversions on that pipeline that you’re seeing in March and into April?
Yes. Yes. So, yeah. So look it’s for the most part we’re guessing because it’s too early in the quarter to actually have a good sense of what may slip or not. At the end of Q1, we did have a few deals that slipped and that were marked. The reason for slippage was uncertainty around COVID. And several of them have closed right after. And I would say it’s not like every quarter there are a few deals that slip. And the number of deals that slipped in Q1 was actually not out of the ordinary compared to previous quarters. So we don’t have really anything to quantify the effects we might see but we do anticipate that we will see some.
When it comes to usage, again, it’s also a little bit more difficult to compare because some of the usage patterns have changed a little bit as companies have scrambled to reorganize. So there’s a little bit less predictability in there, which is also why we’re baking that into some of our guidance.
So overall, look, we do anticipate some uncertainty and some pressure on some fronts in Q2 and Q3. I would be worried, if that didn’t happen. But we don’t have anything that makes us particularly concerned in front of us right now.
That’s helpful. And then I just wanted to make sure I understood churn a little bit better Oli. You noted earlier that you’re not being impacted by workforce reductions. But when we think of higher level churns embedded in your guidance is that assumption that some customers might go out of business on the smaller side? Or might we see some seat-based contraction inside of existing customers at some point?
So we don’t sell per seat. So we don’t – there’s no user-driven – these are account-driven component to one billion. So that part doesn’t affect us directly. What we might see is some effect from our customers contracting their infrastructure. But in most cases our customers actually have to keep that infrastructure up to serve their own customers. And there’s a limit to what they can contract there. So that’s not an effect we’ve seen so far.
I think we don’t exactly know where the churn is going to come from if it comes. It’s a fair assumption that a number of small businesses are going to disappear. We also see some medium and large businesses that are affected and we’ll need some form of help or bailout to survive. We’re all aware of that. So some of that might happen. So we want to be cautious. We want to be cognizant of the fact that if the economy as a whole is affected some of it is going to ripple to us considering the fact that we have a very broad-based customer base.
Hi. Thanks and congrats on the strong results. Can you break out the vertical exposure of your customer base? And perhaps more specifically, what the contribution is from some of the more macro-sensitive sectors, including travel and entertainment?
Yeah. We said, we have 10% or less that are subject to – that are in the most exposed which are travel hospitality, dining and those types. So, about a 10% exposure and we have exposures on the other side to some of the work-from-home, collaboration and food deliveries and others. So, we’re pretty diversified. We’ve always said we have a diversified customer base. And our concentration is not above 10% in those, impacted industries.
Okay. And then one quick question on the pricing environment. Obviously, given the conversation with Dynatrace and others AppDynamics, New Relic, et cetera. You view it as kind of the most attractive price point out there. How often would you say pricing is an important driver of the conversation especially in this environment? Like are people – are customers really thinking about pricing right now? And is that something that comes up as a decision point right now? Would love to understand sort of what the sales guys are seeing in these conversations.
Yes. So in general, we – the way we differentiate is through the integrated platform and the outcomes we give through our products and less so the pricing that we have. We do have a pricing model that disaggregate certain elements so that our customers can align the price they pay with the value they get, and especially when it comes to matching data and logs and things like that.
I would say, we haven’t seen any changes in that environment. The one thing that we think is might be an advantage is that we also – we operate by starting small and growing with our customers. Our model is not predicated on very large multi-year upfront deals. And that’s something that is attractive to customers especially in an environment where they’re trying to manage cash.