Hi all
my notes from the CC. I have no position in DDOG, but am watching closely, since they’re in the same space as ESTC.
I didn’t realise they’re getting into security as well, so very much playing in the same big areas. Still seeing impressive growth, they have stated that they’re not displacing existing installs, but entering when there is no existing solution (other than home-baked). So obviously the market for new software is growing rapidly.
Also impressive that more customers are landing with 2+ products, either [Infrastructure and Logs] or [Infrastructure and APM]. This (to me) suggests that development teams are making the call.
They’ve also looked at a profiling product (how fast/efficient code is running) which is… a little odd, but their overall strategy is looking at “solving for complexity” across all of software, from source-code to running in production.
An excellent quarter I think? Their new products are not moving the needle and probably won’t for a while, I’ll be watching with interest as their circle of competence moves away from development teams. The same is true for ESTC. If ESTC can’t get very-good results in the ‘new software’ market which appears to be growing rapidly, then… on the chopping block. But the signs are good.
I should probably take a small position in DDOG, but awaiting ESTC results with interest.
cheers
Greg
ps. As always, copy+paste into dillinger.io for pretty version
Q4 2019
Broad-based strength across customer segments and geographies…
“integrated platform”
| | Customers | | >$100k ARR | | >$1m | | |
|:-------------|:----------|:------|:-----------|:--------------|:-----|:---|:-------------------------------|
| Q4 2019 | 10,500 | +1000 | 858 | +130 +89% yoy | 50 | | |
| Q3 2019 | 9,500 | +700 | 725 | +135 | | | [GD: acceleration here in 1Q?] |
| Jun 30, 2019 | 8,800 | +1100 | 590 | +140 | | | 2Q |
| Dec 31 2018 | 7,700 | +2300 | 450 | +210 | 29 | | 1Y |
| Dec 31 2017 | 5,400 | +1600 | 240 | +110 | 12 | | 1Y |
| Dec 31 2016 | 3,800 | | 130 | | | | |
| | | | |
|:------------------|:------|:---------|:-------------------------------|
| Revenue | $363m | +85% yoy | **Above high end of guidance** |
| Non-GAAP OpIncome | $638k | | |
| Customers > $100k | 727 | +93% yoy | |
| DBNER | >130% | | |
| FCF | $11m | | |
| FY | | | |
| Revenue | $114m | +83% yoy | **Above high end of guidance** |
| FCF | $0 | | |
~60% customers using 2+ products up from 25% a year ago.
- ~65% new logos had 2+ vs 25% a year ago
Penetration relatively even across enterprise, mid-market and SMB segments.
~25% using Infrastructure, APM and Logs up from 5%.
>70% of ARR from customers >$100k
Products
- Launch of Synthetics
- Real User Monitoring - monitors journey of actual users within an application
- Launch Network Performance Monitoring - monitors network traffic across public and private clouds and on-premise
- SNMP integration beta (simple network monitoring protocol)
Security Monitoring announced in Q4
“first step to apply the power of our platform beyond observability used cases. We envision a future where silos continue to break down beyond dev and ops and extended security teams.”
Go to market
International expansion
New Government-focussed team
Partner channel investment
Finances
“record quarter for new logo ARR”
“average ARR of enterprise customers ~$230k (+$160k end of 2018)”
- mid-market $170k (+$110k 2018)
“Record ARR adds and strong momentum internationally - teams still ramping”
| | | | |
|:-----------|:--------|:------------|:----------------------------------|
| Revenue | $113.6m | +85% yoy | |
| Billings | $130.3m | +77% | Adjusted for invoice timing = 85% |
| NonGAAP GP | $88.4m | | |
| NonGAAP GM | 78% | | vs 76% Q3 and 75% Q42018 |
| R&D | $31.6m | 28% revenue | |
| S&M | $39.3m | 35% revenue | vs 46% yoy |
| G&A | $10.4m | 9% revenue | |
| OpIncome | $7m | | vs -$4.3m yoy |
| OpMargin | 6% | | vs -7% yoy |
| NetIncome | $10.1m | | |
| Shares | 327m | | |
| Cash | $778m | | |
| CFO | $17.4m | | $24.2m FY |
| FCF | $10.9m | | $800k FY |
“we see ample opportunities to continue to invest in the large market opportunity ahead of us.”
Guidance
| | | |
|:------------------------|:-----------------|:---------|
| Q1 Revenue | $117-$119m | +68.5% |
| Non-GAAP operating loss | -$5 to -$7m | |
| Shares | 296m | |
| Loss per share | -$0.01 to -$0.02 | |
| FY 2019 | | |
| Revenue | $535-$545m | +49% yoy |
| Non-GAAP operating loss | -$20m to -$30m | |
| Loss per share | -$0.03 to -$0.07 | |
| Shares | 302m | |
“Note that our share count forecast for Q1 and 2020 reflects our basic share count, since we are forecasting a loss in each period.” [GD: suggests diluted is higher?]
Question-and-Answer Session
- Momentum, displacement - strong. “mainly displace home-grown systems”
- 3 buckets - Infrastructure, APM and logging, NPM and RUM and Synthetics. Infrastructure = super high growth SaaS. APM and logs both hypergrowth. Synthetics just going to start charging.
- 2 or more products - typically “Infrastructure + Logs” or “Infrastructure + APM”. Bit more friction in APM.
“dollars higher for Logs customers” [GD: good sign for ESTC?] APM takes longer [GD: bad sign for ESTC?
] - New pricing mechanism for Logs? [GD: because of ESTC?] - “don’t want customers to be prisoners of a pricing agreement they don’t like…”. No change in competitive wins (Splunk pricing changes).
- Security - havent played here before. Very early, mostly product development. Think it’s well aligned with current approach but time will tell.
- Networking - not going to happen overnight, not replacing current on-prem tools. Starting with customers who have significant footprint in public and private clouds. Then extend to on-prem. So a subset of possible customers.
- Logging - competition. “Most customers don’t have anything” [GD: Good for ESTC?]. Splunk. “we don’t try to go and replace the on-prem environment before we are well-established in next-generation public and private clouds. That is our strategy.”
- Serverless - investing heavily. Think its part of a big continuum. Think it tilts market in our favour [GD: not clear how]
- With revenue outperformance, we can hire more quickly, R&D and Sales. Spend more marketing dollars.
- 1000 net ads, renewal rates are stable, already pretty high. Just more customers. 2nd half of year stronger.
- Primary point of contact in Enterprise? Typically a new cloud initiative, driven by small team [GD: sounds like development team just grab DDOG which is my experience re: NEWR].
- International vs Nth America and Europe - Cloud migration starting to happen at scale. Ramping sales team, still early. Optimistic.
- Q4 cohort, see a bigger attach with more products. So larger land.
- FedRAMP - not yet.
- Haven’t seen NRR down because of larger lands.
- Haven’t started charging for new products - starting to charge baked into guidance. Relatively small short-term impact.
- Sales force maturity with new products. Land with Infrastructure, Logs and APM also well understood [GD: development team orbit]. More investment needed for new products. “Selling a platform”. Mostly frictionless.
- Partner network - SIs in US, VARs in Europe, more channels in Asia. Designed to have broad appeal.
- Solving for complexity - from source-code to keeping it going in production. As time goes by, extend the footprint to cover as much of space as possible. “Profiling product (differentiated)” [GD: interesting]
^^^^^^^^^^^^^^^^^^^^ GD: this is an interesting insight ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ - Vertical markets - not there yet. Focussed on horizontal.
- Number one focus - hiring right salespeople. Hiring best engineers. Scalability in infrastructure. Hiring.
- Impressive landing with more than Infrastructure. Concerted sales effort? No, selling the platform, single-pane-of-glass.
- Deferred contract costs up a lot [GD: whats this?] “to salespeople - high expenses because of large commission - feel free to apply!” [GD: :-D]