OK, I am not going to start off by asking about who let the canine out. In terms of DDOG, the pet is already out of the kennel and it is racing down the track well ahead of any competition. In fact on the earnings call, the CEO, Olivier Pomel, stated that they don’t really see the competition much in sales and bidding situations. Now that’s lovely - there is no competition to speak of. If there was ever a company that was a pure-play cloud company, with a strong tailwind behind their backs, and nothing to stop them from taking virgin market share….that company is called DataDog. Floki, the Norseman, has landed on the shores of Iceland and the entire island is his for the taking.
Here is what stood out to me in DDOG’s Q4 earnings report:
refer to the detailed DDOG financials map here: https://beachman.substack.com/p/ddog-has-no-real-competition…
Revenue growth - Q4 YOY revenue (84%) handily beat guidance by a whopping 20% and annual revenue rose 70% YOY (a beat of 5%). Sequential QOQ revenue beat guidance by a full 13% and grew double digits by 21%. They guided for $339M revenue in Q1 2022 and for $1,530M in full year 2022. Deferred revenue (a sign of contracted revenue that will be booked in future quarters) grew 82% YOY and 24% QOQ to $372M. Their recent FedRamp Moderate approval will start feeding additional growth into the pipeline with larger $1M+ contracts.
Profitability - Gross margin is 79% and steadily creeping up to the 80% level that they promised when they IPOed. Net income was $7M and it will be interesting to watch whether they stay in the green going forward. Non-GAAP P/L per share beat Q4 guidance by 67%!
Cashflow - They generated operating cash flow of $287M and free cash flow of $251M in FY2021. Healthy and steady QOQ cash flow generation for 4 quarters straight.
Market share - DBNRR has been at / above 130% for 18 consecutive quarters…think about the market dominance demonstrated by this metric. Once a DDOG customer, you tend to keep buying more. Most customers start a new contract with at least 2+ products and this cohort is growing 78% YOY. Customer with 4+ products grew 33% YOY and large customer with > $1M contracts grew 114% YOY.
Debt - remains steady at $735M along with about $1.6B cash on the balance sheet which is being continually replenished by increasing operating and free cash flow.
Product - Product innovation continues with the launch of Sensitive Data Scanner, Online Archives, the acquisition of CoScreen and OZcode, 80 new integrations and a lot more. New and expanded partnerships were announced with AWS and Confluent. Their new foray into cloud security is intriguing and could lead to significant TAM additions.
So here is my plan regarding DDOG:
My conviction in DDOG has increased with this Q4 2021 earnings report. I re-scored the company using my analysis method and their score jumped 2 points to take the top spot in my rankings - major improvements in cash flow helped bump up their score.
Elevator pitch - I own DDOG because I consider them to be the dominant cloud infrastructure company, by all measures. The cloud migration secular trend is not going away and DDOG does not seem to have any significant competition today. Their products are top-notch, customers love them and keep buying more and the switching costs are getting higher.
Beachman’s plan - I am currently at a 7% position in DDOG and would like to buy 1-2 more tranches to get to about 10%. I will add anywhere from $135 and below (watching the 200day MA on the daily chart).