DDOG Q1 FY2024 Analyst Q/A

DDOG Q1 FY24 Analyst Q/A

Olivier Pomel, CEO
David Obstler, CFO

Q Optimization and customer behavior. Still seeing same steps and what round are we in?
A We don’t know exactly yet. We see customers taking another bite at their own employees and don’t see end to it or ability to estimate when it will end.

Q On the cost side, how do you think about today vs getting ready for tomorrow?
A This year prioritizing and optimizing efficiency to get returns and get prioritization from those.

Q On cusp of compute cycle and AI. With this new compute cycle we’re about to embark on, what are the implications, puts and takes re: how applications will be built.
A It’s still fairly early to see what the market will look like re: AI. It’s going to drive more compute, cloud migration, need modern architectures to implement AI. Longer term, they see an increase in productivity for software engineers. The more productivity there is, the less they understand the software they produce and the more they become dependent on AI.

Q Any customers who have started optimization now that had not last year?
A April is similar to what they usually see in Q4 and the FY.

Q Looking at the math on the large up-front bill that did not recur, it looks like approximately $65M. Will you recapture that?
A That customer’s cost will be spread out over time. They will get that bill in a more chunked up way than last year. It was a crypro currency who got decimated, and they modified their billing to be a team player with them.

Q Congrats on passing $2B ARR sa one of the fastest SaaS companies to do that. Does optimizing align w/ the hyperscalers say it will normalize in the next couple of/few quarters?
A Nothing to suggest that any particular cloud is recovering from optimization yet. Equally well positioned to capture $ from each of the hyperscalers (AMZN, GOOG, MSFT Azure).

Q Generative AI, is it merely a factor of waiting for these workloads to come on line?
A There’s going to be more productivity and you end up generating more stuff. The way they imagine the future is they see companies developing more stuff for their customers faster.

Q Growth
A Can look at sequential growth of the 3 major cloud providers at 1% growth, DDOG is significantly higher than that.

Q Can you speak to your exposure in Financial Services sector?
A Don’t have exact numbers. It’s been a growing vertical. They have not seen any changes in this vertical. Nothing to report on their end.

Q Expansion deal w/ large Fintech. Can you speak to why DDOG still wins?
A Deliver more value, better and cheaper than competition vs. open source. Remarkably unchanged.

Q What re: Go to market can you do to increase your penetration?
A Expanding sales force in geographies that make sense. Having the right sales force to gain sales.

Q Between the two APM logging please describe size.
A Smaller products grow faster than larger ones per usual.

Q $5M outage, what did you learn from that? Any other repercussions?
A A lifetime of learning in a day. Because of the very wide nature of this incident, they had 500-600 engineers working on this. Not worried it will happen again, rather they are confident they can recover faster in the future and do right by their customers by recovering faster. Used this as a way to strengthen their relationships with their customers.

Q Large customer adds at 130 vs. 240 last quarter.
A 1st qtr is seasonally lowest for new logos. Most of customers in larger customer group aren’t born there.

Q Cloud security mgt sales. How to think about this offering?
A No dramatic change from before. Not only building a point solution, but rather they’re moving in several directions. Go to market not changing. See expansion from observation to security customers. Very pleased w/ customer adoption.

Q Do you see any offsets w/ companies using AI re: observability.
A Don’t believe they’ll see this.

Q Are credits from the outage behind you?
A They’ve provided for this impact in Q1.

Q Is DDOG winning new customers on APM or ____, and where should we be focused re : growth in 17 modules offered by DDOG?
A Doesn’t matter were customers start, they can expand into other modules. Products growing and hard to pick one that’s more popular than others. Everyone expects to see more from AI.



Strong report for DDOG. Here are some stats:

“it earned an adjusted 28 cents per share as revenue rose 32.8% year-over-year to $482M. Analysts were expecting an adjusted gain of 24 cents per share and $469M in sales”

“Datadog boosted its full-year outlook, as it now expects to generate between $2.08B and $2.1B in sales, up from a previous guidance of $2.07B to $2.09B”

“It also now expects adjusted earnings to be between $1.13 and $1.20 per share, up from a prior view of $1.02 to $1.09 per share.”

Some good quotes from the conference call:

“New logo bookings reached a new record for Q1 and were up slightly from last year as we continue to add many promising new logos, which I’ll discuss in a bit.”

“our total ARR exceeded $2 billion for the first time, a true achievement for all of us at Datadog even though we all know we’re only getting started.”

“We do continue to see customers optimizing their cloud usage, and visibility remains limited as to when this optimization cycle will end. But we firmly believe it will.”

Some general comments based on my opinions:

  • DDOG seems to be adding new products like crazy. A bunch of them were discussed.
    -Guidance assumes optimizations will continue through the year end so I read that as very conservative.
    -Growth is slowing but I think that is consistent w/ almost every company now - nothing wrong w/ DDOG execution. (I think DDOG correctly “read the room” last Q while NET faltered on that).
  • I am a happy shareholder and plan to add on anymore weakness.

Another interesting thing from the CC regarding the state of the cloud. One analyst keyed in on the statement from AWS about a slower April by asking if April was slower than March for DDOG, and DDOG answered they did not see a material difference: “I would say April is broadly consistent with what we’ve seen in Q4 and Q1. I think there’s no major difference to call out there.” Could the AWS debacle be as simple as it is losing to Azure and GCP, who both had strong reports?

In closing, again just my humble opinion, but I think this could be the most difficult quarter we see this year. The SVB crisis had to be brutal on all tech companies. I envision it as similar to the pandemic hitting - the industry probably froze for a couple of weeks while everyone was worried they would not survive. This essentially removes a couple of weeks from the quarter. Also, DDOG had the outage issue. The fact it still had a solid quarter in the face of these obstacles may speak to an easier road ahead. Finally, prior year comparable numbers will continue to get easier from here. That’s my optimistic view anyway (makes for easier sleeping :slight_smile: ).

Hang in there.


No investment advice, just musings.


It seems embarrassing to me that DDOG grew 33% YoY on about $2 billion run rate.

While you have something like Azure growing 31% at $60 BILLION run rate.


Good point. I couldn’t find the profitability of Azure Cloud in a quick search. Two/three quarters ago, Microsoft was driving all sorts of campaigns to increase usage of idle capacity in Azure (I work for a partner, and competitor, depending on the product line). And we also know that GCP has issues with profitability (ads still pay the bills at Google).
Lastly, volume of revenue is closely related to TAM. You can’t compare absolute numbers from Tesla to the leading electric bicycle manufacturer, from example.


DDOG’s growth is strongly correlated with AWS. Here’s a visualization taking AWS QoQ growth rate, multiplying it by two, and comparing it with DDOG:


And a smoothed version:


( Using a overlapping two-quarter average, e.g: Q4 QoQ = (Q4+Q3) / (Q3+Q2) - 1 )