DDOG hinting at more acceleration in Q4?

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I know the guidance game isn’t one to take too much stock in. But given DDOG’s consistency in their numbers and guidance, I wondered if we could predict where next quarter’s revenue might land given the guidance given today and their history of beating guidance. Below is the guidance given for each quarter’s revenue growth, the actual growth announced at EOQ, and the percentage by which DDOG beat the guidance. All revenue growth numbers are sequential.


                   Q4Y19        Q1Y20	Q2Y20	Q3Y20	Q4Y20	Q1Y21	Q2Y21	Q3Y21	**Q4Y21 Guidance**
Guidance              6%	  4%	3%	3%	5%	5%	7%	6%	**7%**
Actual Growth        19%	 15%	7%	10%	15%	12%	18%	16%	**17%(?)**
Revenue Beat      11.37%	11.19%	3.70%	7.41%	8.90%	6.72%	10.14%	9.51%	**8.82%(?)**

I took the average revenue guidance beat for the last 4 quarters (8.82%) and extrapolated that to assume DDOG would beat their Q4 revenue guidance by the same 8.82%.

DDOG guided a Q4 revenue midpoint of $291m (7% sequential growth), and with these numbers I’ll be expecting to see actual revenue come in at $314-316M. That would put Q4’s actual YoY growth at 78%, a slight acceleration from the 75% from today’s results.

While this may just be trying to read tea leaves late at night after an espresso martini with dinner, I do think it’s significant they guided for 7% growth rather than stick with the 5% or 6% they’ve used before. The last time they guided for 7% was a pretty significant quarter with 18% actual sequential growth.

I welcome all thoughts, especially from you west coast night owls as I sit here and contemplate my insane choice of cocktail tonight.

  • Grothaus
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This is one thing that makes SaaS easier to follow. Much more predictable. Now think about Q1 22. If they come in at that 315 for Q4, those annualized growth numbers are 91%, 78%, 85% plus whatever the first quarter comes in at. Mathematically, this indicates that there is a very good chance for the top line to accelerate in Q1 22 as well. Acceleration into the 80s YoY is very possible.

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I have to pick on this phrase:

“Mathematically, this indicates that there is a very good chance”

While I agree in general that SaaS growth provides some more dependable information about growth expectations, “Indicates” and “chance” mean your math is predictive. It is trying to guess the future. Throwing “Mathematically” at it just means your guesses used numbers, but the language makes it sound like hard proof. Please share the math. This comment may be moot, but it highlights the danger of short replies.

Anyway, I just want to point out that each time a company grows a lot, it gets a lot bigger, which makes it harder to grow by that amount again. The law of large numbers. This is the reason we see companies like Zoom slow down and become less attractive as an investment.

Rather than look at trends and other sorts of mechanical predictions, I think we are better off looking at how much the company is growing, its market cap and TAM. TAM is a bit more of a thought experiment than an actual measurement. Trying to figure out TAM can be a great way to understand a company better.

For DDOG to be accelerating growth is simply awesome. At a rough market cap of around $55B, for it to grow 70%+ is amazing. For simplicity, if we just take this number as the year result, and with all things being equal to today (price goes up equal to revenue growth), next year, the market cap could be >$90B!! Can they do that again next year? …AND accelerate?

Cloudflare is the only company I can see with a TAM that is so large it almost doesn’t matter. If they become the 4th public cloud, but also factor in circumventing providers at larger scale, private cloud, edge compute, storage, state, etc, they have a unique shape that may allow them to stand on their own among the giants. Their TAM starts with a T. Since Datadog’s business is understanding and monitoring data, the one thing we will always make more of, forever, maybe they can keep up the pace. We can only watch the numbers and see when they start to slow down. They WILL slow down. They have to. So again, acceleration at this scale is amazing to me today. If they do it again I will be amazing again. I’m not going to assume they will just because they have. They are fighting their own weight to do it. That said, their TAM is probably also in the Ts.

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