DDOG: post earnings thoughts

DDOG (15.8% allocation; Q2FY21 5Aug earnings date)

Going into the earnings call, I was looking for a sharp reacceleration in revenue growth. In Q2 2020, the Company’s customers cut back on their spending with DDOG as they stepped back and assessed the impact of the pandemic on their businesses. For several quarters, the numbers (financial results) were deceiving and masked the true strength of DDOG’s business. I didn’t see this at first; Saul and others (not me) figured this out and wrote about it in posts on Saul’s Investing Discussions. We’ve patiently waited for three quarters for the reacceleration in revenue growth to begin in Q2 2021. The results, released on 5Aug, were even better than I expected. Revenue growth surged back to 67% growth. Every other metric that I track was very solid in Q2; I couldn’t find anything wrong or to worry about in the results. The only challenge mentioned on the call was a difficulty in finding candidates for DDOG’s job openings. However, I expect this challenge to fade next month when children go back to in-person school (freeing up parents to work again) and the removal of government assistance drives workers back into jobs. Overall, I give management a solid “A” for execution. Some of the CEO’s/CFO’s comments (paraphrased by me) that stood out as relevant included the following:

Aggressively hired throughout the pandemic: DDOG never took the foot off the gas so the Company now has enough sales people to support further revenue growth and customer acquisition.
Issued very strong guidance: For next quarter, DDOG is guiding for 60% revenue growth. Assuming DDOG beats that guidance, we can expect revenue growth in the mid- to high-60s percent meaning that DDOG only really had a brief hiccup during the start of the pandemic.

Continued investment in R&D and S&M: It’s another positive sign that DDOG will carry on with “continued aggressive investments in R&D and go-to-market”. These investments should support new product introductions and customer acquisition to fuel revenue growth for the foreseeable future.

Opportunity in front of DDOG is very large: DDOG has a lot of total available market left to grab and that market will also keep growing. Here’s what CEO Pomel said on the Q2 conference call:

“One is, in terms of penetration, I think the intersection of what we have and what’s in the cloud in the next year is still a small fraction of what there is in the market total. So there’s a lot more we can get from that. The second aspect is that the world is transforming digitally so the market, like the overall — the size of the infrastructure that will have to be monitored probably is a lot bigger than what had to be monitored five years ago.”

Continuing with what’s working: Management was asked several times about what’s changed and what DDOG is doing differently. The answer was that nothing’s really different and what’s worked for DDOG in the past should continue to work well going forward. From this and from the Company’s business performance, I’d say execution has been and should continue to be top-notch. Furthermore, I think management sees a very long runway for growth going forward. I agree.

In summary, I’m very pleased with DDOG’s performance, execution, and future prospects. As it should, DDOG remains one of the highest allocation stocks in the portfolio.


In Q1 they told us they would make 213M, which would translate to 7% QoQ and 52% YoY.
They delivered 233.5M, beating the outlook by 9.6%, growing QoQ 18% and 67% YoY.
That was indeed a nice re-acceleration.

Looking at Q3FY21 earnings now and experimenting with modeling their next Q.

They told us they will make 248M next Q (Q3FY21) on the max side, which translates to the 6% sequential growth and 60% YoY growth (vs 154.7).

If they beat by ~4% they would come in at 258M revenue with actual 10% QoQ and 67% YoY (again).

Looking at the recent beats I could optimistically say that they might beat by more:

If they beat by ~7% they would come in at 265M revenue with actual 13% QoQ and 71% YoY. – I realize this is all speculation on my part modeling the optimistic outlook.

Good luck to all DataDog longs. It’s 15% of my portfolio and I enjoyed listening to recent webcasts conf with Jeffries and Citi.


PRE data snapshot

DataDog	        Q3	Q2	Q1	Q4	Q3
next Q		        248	213	187.0	164.0
next QoQ		6%	7%	5%	6%
next YoY		60%	52%	43%	44%
BEAT %	        6.9%	9.6%	6.1%	8.2%	6.7%
REVENUE	        265	233.5	198.5	177.5	154.7
Actual QoQ	13%	18%	12%	15%	11%
Actual YoY	71%	67%	51%	56%	61%

Thanks. Baconski