DDOG Q4 2021

Investment Analysis Clubs Saul’s Investing Discussions
1

WOOF. What more needs to be said?

Fourth Quarter 2021 Financial Highlights:

– Revenue was $326.2 million, an increase of 84% year-over-year.
– GAAP operating income was $8.5 million; GAAP operating margin was 3%.
– Non-GAAP operating income was $70.6 million; non-GAAP operating margin was 22%.
– GAAP net income per diluted share was $0.02; non-GAAP net income per diluted share was $0.20.
– Operating cash flow was $115.8 million, with free cash flow of $106.7 million.
– Cash, cash equivalents, restricted cash, and marketable securities were $1.6 billion as of December 31, 2021.

We are pleased with our fourth quarter performance, as we demonstrated excellent revenue growth and continued
business efficiencies," said Olivier Pomel, co-founder and CEO of Datadog. “We are proud of our strong execution in
fiscal year 2021, with 70% year-over-year revenue growth, $287 million in operating cash flow, and $251 million in free
cash flow.”

Pomel added, “We continue to believe we’re in early days with our opportunities in observability. And we are just starting our efforts in cloud security and developer-focused products. We have much to do, and we’re excited about what we’re working on for 2022 and beyond.”

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2

I like the guidance for Q122 as well as the numbers for Q4 that you shared John.

First Quarter 2022 Outlook:
? Revenue between $334 million and $339 million.
? Non-GAAP operating income between $36 million and $41 million.
? Non-GAAP net income per share between $0.10 and $0.12, assuming approximately 348 million weighted average diluted shares outstanding.

Fiscal Year 2022 Outlook:
? Revenue between $1.51 billion and $1.53 billion.
? Non-GAAP operating income between $160 million and $180 million.
? Non-GAAP net income per share between $0.45 and $0.51, assuming approximately 350 million weighted average diluted shares outstanding.

On the high end this represents a 70% yoy growth estimate for Q122 compared to Q121. This is an improvement on the 64% yoy growth estimate for Q421, which they clearly have blown away with their 80% actual growth number.

As John shared they are “just starting our efforts…” Looking forward to the conference call. Right now they have checked all of my boxes from a numbers perspective.

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Would also add that their quarterly and full year revenue forecasts also beat expectations:

For next quarter, rev forecast is $336.5 million vs $306.4 million estimated, a 9.8% increase.

For the full year 2022 rev forecast is $1.52 billion vs estimates of $1.399 billion, a 8.6% beat.

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Great results!

I would have been happy with $315M revenue, and they reported $326M.

  • Revenue $326.2m (+84%YOY) beats by $34.7M
  • Non-GAAP EPS of $0.20 beats by $0.09 !
  • Operating cash flow $115.8m
  • Free cash flow $106.7m
  • FCF margin = 32.7%
  • Adj. operating margin = 22%
  • 216 customers > $1m ARR (+114%YOY)
  • 2,010 customers > $100K ARR (+63%YOY)
  • FY 2022 revenue guidance ~+50%YOY
  • Q1 guide > 70% YoY

Fourth Quarter & Recent Business Highlights:

  • As of December 31, 2021, we had 216 customers with ARR of $1 million or more, an increase of 114% from 101 as of December 31, 2020. As of December 31, 2021, we had about 2,010 customers with ARR of $100,000 or more, an increase of 63% from 1,228 as of December 31, 2020.
  • Announced Federal Risk and Authorization Management Program (FedRAMP) Agency Authorization at the moderate impact level.
  • Announced a global strategic partnership with Amazon Web Services, Inc. (AWS). As part of this collaboration, AWS and Datadog will work together to develop and deliver tighter product alignment in the future.
  • Announced the launch of Sensitive Data Scanner. When configured for a customer’s environment, this new service provides customers with an easy solution to detect, classify and protect sensitive data found in their application logs, helping them comply with regulatory requirements (such as GDPR, HIPAA, CCPA), industry standards and business policies.
  • Achieved the AWS Graviton Ready designation, part of the Amazon Web Services (AWS) Service Ready Program. This designation recognizes that Datadog has demonstrated successful integration with AWS Graviton.
  • Achieved Amazon Web Services (AWS) Migration & Modernization Competency status for AWS Partners. This designation recognizes that Datadog has demonstrated technical proficiency and proven customer success automating and accelerating customer application migration and modernization journeys.
  • Announced our integration with Confluent, the platform to set data in motion. Users running Confluent Cloud at any scale, from a proof of concept to mission-critical applications, can now use Datadog to monitor their Confluent Cloud resources alongside the rest of their technology stack.

-Ron
Long DDOG (since Oct 2019)
Follow the business, not the short term wiggles on the price chart. Most of the money is made in the sitting still and waiting

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At first blush this is a stellar quarter. Accelerating to 20.6% QoQ (WoW). The only thing that I wanted to take a look further at was the guide of 339mil for Q2 on the high end of guidance. That would be only a 4% QoQ growth. But of course we should expect them to beat that. They originally guided to 292mil for this quarter and then delivered 326.2 (+11.7%). If they beat their current 339mil guide by 11.7% they would have 378.7mil for Q2 which would be +16% QoQ. Thats great. Also I think that would even drag the YoY number to 90%


	Q1 2021	Q2	Q3	Q4	Q1	Q2 2022 est
Revenue	177.5	198.5	233.5	270.5	326.2	378.7
YoY	56.3%	51.3%	66.8%	74.9%	83.8%	90.8%
QoQ 	14.7%	11.8%	17.6%	15.8%	20.6%	16.1%
Rev add	22.8	21	35	37	55.7	52.5

This is exactly what I want out of a company to maintain a 20%+ weighting in my portfolio.

Hope I didn’t have a typo, the coffee hasn’t worked its magic yet.

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Outstanding quarter. There is something on the FY22Q1 guidance that is troubling me though. If you take the high end revenue estimate (339M), it’s just a 4% sequential increase from Q4 to Q1.
Last year, Q4 to Q1 had a 11.8% increase (thank you Parydox for the visual tool!).
I can’t find the guidance and beat when they announced Q1 earnings last year to evaluate how much they typically sandbag, but at a first glance, it seemed low out of the gate. Am I overthinking it?

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I am especially impressed with the fact that DDOG achieved such high growth together with a huge increase in profitability. I don’t wish to generalize but from I have seen is that for a lot of hyper growth stocks typically the move to profitability is paired with a deceleration of revenue growth (for what ever reason; saturation, law of large numbers …whatever the reason) - but that has NOT happened with DDOG - DDOG is becoming more profitable while still maintaining hypergrowth.
Just about every profitability metric I track went through the roof this quarter reaching record levels. Here is a snap shot of some metrics:


non-GAAP Gross Profit 
	Q1	Q2	Q3	Q4
				
2019				$88,35
2020	$105,25	$111,81	$121,53	$137,61
2021	$153,03	$178,28	$209,96	$261,97

% YoY (non-GAAP Gross Profit)
	Q1	Q2	Q3	Q4
				
2019				
2020		                55,8%
2021	45,4%	59,5%	72,8%	90,4%

non-GAAP Gross Margin 				
	Q1	Q2	Q3	Q4
				
2018	0,0%	0,0%	0,0%	77,7%
2019	80,2%	79,9%	78,6%	77,5%
2020	77,1%	76,3%	77,8%	80,4%

Operating Cash Flow (Net cash providing by operting activities)
	Q1	Q2	Q3	Q4
				
2019		-$0,44		$17,43
2020	$24,26	$24,74	$36,27	$23,83
2021	$51,70	$51,70	$67,40	$115,79

Operating Cash Flow % Revenues				
	Q1	Q2	Q3	Q4
				
2019	0,0%	-0,5%	0,0%	15,3%
2020	18,5%	17,7%	23,4%	13,4%
2021	26,0%	22,1%	25,0%	35,5%

Free Cash Flow 
	Q1	Q2	Q3	Q4
				
2019		-$5,53		$10,86
2020	$19,31	$18,60	$28,64	$16,65
2021	$44,50	$42,30	$57,10	$106,68

FCF Margin
	Q1	Q2	Q3	Q4
				
2019	0,0%	-6,6%	0,0%	9,6%
2020	14,7%	13,3%	18,5%	9,4%
2021	22,4%	18,1%	21,1%	32,7%

non-GAAP Operating Income
	Q1	Q2	Q3	Q4
				
2019		-$5,47		$7,87
2020	$16,33	$15,34	$13,81	$18,12
2021	$19,56	$30,90	$44,00	$70,60

Operating Margin				
	Q1	Q2	Q3	Q4
				
2019	0,0%	-6,6%	0,0%	6,9%
2020	12,4%	11,0%	8,9%	10,2%
2021	9,8%	13,2%	16,3%	21,7%
		
non-GAAP Net Income				
	Q1	Q2	Q3	Q4
				
2019		-$5,43		$11,03
2020	$19,03	$17,45	$15,99	$19,08
2021	$20,15	$32,00	$44,27	$70,17

Net Income Margin				
	Q1	Q2	Q3	Q4
				
2019	0,0%	-6,5%	0,0%	9,7%
2020	14,5%	12,5%	10,3%	10,7%
2021	10,1%	13,7%	16,4%	21,5%

Non-GAAP EPS (diluted)				
	Q1	Q2	Q3	Q4
				
2019		-$0,07		$0,06
2020	$0,06	$0,05	$0,05	$0,06
2021	$0,06	$0,09	$0,13	$0,20

Non-GAAP EPS % YoY				
	Q1	Q2	Q3	Q4
				
2019	#DIV/0!	#DIV/0!	#DIV/0!	#DIV/0!
2020	#DIV/0!	-171,4%	#DIV/0!	0,0%
2021	0,0%	80,0%	160,0%	233,3%
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8

rodarlo,

About their 4% guidance, you can check what happened last year.

2020 Q4 177.5
2021 Q1 guided mid 186

So they guided 4% QoQ last year as well

Actual 2021 Q1 was 198.5, or 12% QoQ

I wouldn’t worry much about it. Business is firing on all cylinders and the relatively small revenue QoQ guidance probably has more to do with business cycles (holiday shoppers) and software sales cycles.

21 Likes
9

Another point regarding guidance, DDOG has beaten their high end guidance by an average of 9.7% over the last 8 quaters:


	% BEAT
1Q20	10,3%
2Q20	2,9%
3Q20	6,7%
4Q20	8,3%
1Q21	6,2%
2Q21	9,6%
3Q21	8,9%
4Q21	11,6%

In the just reported Q4, DDOG issued high end guidance of $339 for Q1; if DDOG would beat their high end guidance by a conservative 8% (which is below the average beat of 9.7%) in Q1 that would mean a revenue of $336, which would be a YoY% revenue growth of over 84.3% (a further acceleration from 83.6% that they just reported in Q4; but a deceleration in QoQ to 12.3% from 20.7%). I would be more than happy if DDOG were to have YoY% growth of 84.3% in Q1.

3 Likes
10

To build on what has been shared, they sure did produce several records as MoneySpin alluded to…

–QoQ growth of 20.6%, the fastest since Q4 2018

–Record Adj Gross Margis of 80.3%

–Record Adj Operating Margin of 21.6%

–Record Free Cash Flow Margin of 32.7%

–The largest gain in customers with ACV > $100K, adding 210

–The largest beat over guidance in company history

I only caught the tail end of the conference call so I am still waiting for the transcript to be published to surf through the comments and additional metrics. But based off this report and the little I did hear on the call, this was a blow out quarter for DataDog. They are steadily accelerating their top and bottom line. It is with good reason the stock is up 15% today.

Some are concerned with their guidance for only 4% growth sequentially however, as others have pointed out a typical 10% beat would result in 13.5% QoQ growth. While this is a decline from the massive 20.6% growth seen this quarter, it is important to recognize there is some seasonality to DataDog’s business. It is apparent from following the numbers that Q4 is generally their strongest quarter and Q1 their weakest. Q1 2021 resulted in 11.8% sequential growth so a typical beat will still result in accelerating revenue YoY. I see nothing to be concerned about here, this company is firing on all cylinders and proving to be well worthy of the #1 position in most portfolios.

Rex
Long DDOG 16%

38 Likes
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Did anyone notice they changed 1 million+ ARR customers from Q4 '20? Last year, they mentioned they had 97 customers but now they are comparing it to 101. Did I miss their announcement of recalculation/correction?

https://investors.datadoghq.com/static-files/ad24b15b-0f90-4…
From Q4 '20:
“Strong growth of larger customers, with 97 $1 million+ ARR customers, up from 50 a year ago”

https://investors.datadoghq.com/static-files/99f54117-a8f5-4…
From Q4 '21:
“Strong growth of larger customers, with 216 $1 million+ ARR customers, up from 101 a year ago”

1 Like
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Did anyone notice they changed 1 million+ ARR customers from Q4 '20? Last year, they mentioned they had 97 customers but now they are comparing it to 101.

I didn’t notice a correction, but they did the same thing for customers with over $100K ARR. In 4Q20 they listed 1253 customers over 100K ARR in the 8K, but in 4Q21 they are comparing to 1228 customers.

4wheel.

1 Like
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In the call transcript, they mention dollar-based net retention rates “above 130” (as usual) and then there is also mention of “dollar-based gross retention rates” in the 90’s… does anyone know the difference between these measures and can explain?

https://seekingalpha.com/article/4485888-datadogs-ddog-ceo-o…

(During David Obstler’s initial remarks.)

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Gross retention doesn’t include up-sells. It’s just the inverse of churn. If dollar-based churn is 2%, then gross retention would be 98%.

On the other hand, net retention includes churn AND up-sells. It’s the measure that allows you to see how much more existing customers are spending.

Best,
Fish

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Hi Fish,
I don’t think you have it quite correct. My understanding is that gross retention refers to what percent of last year’s customers are still here this year, and

dollar based net retention says if you look at only the customers that were here a year ago (including any that dropped out), how much money did they bring in this year compared with last year (not including any revenue from new customers signed on in the last year).

I hope that that is clear.

Saul

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I was able to find these definitions from DDOG’s amended S-1 filed on September 9, 2019. I assume they have not changed the definition in the meantime, but haven’t directly confirmed that. These definitions are from page 59: https://www.sec.gov/Archives/edgar/data/1561550/000119312519…

Here is the dollar-based gross retention rate:
We calculate our dollar-based gross retention rate by first calculating the point-in-time gross retention as the previous year ARR minus ARR attrition over the last 12 months, divided by the previous year ARR. The ARR attrition for each month is calculated by identifying any customer that has changed their account type to a “free tier,” requested a downgrade through customer support or sent a formal termination notice to us during that month, and aggregating the dollars of ARR generated by each such customer in the prior month. We then calculate the dollar-based gross retention rate as the weighted average of the trailing 12-month point-in-time gross retention rates.

They further state that “we believe this demonstrates the stickiness of the product category we operate in, and of our platform in particular.”

As for dollar-based net retention rate,
We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months, but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate. We then calculate the weighted average of the trailing 12-month point-in-time dollar-based net retention rates, to arrive at the dollar-based net retention rate.

They see this measure as an “indication of the propensity of our customer relationships to expand over time”

Simplifying, and ignoring anything around the weighted averaging they do:

Net retention rate: how much their revenue is growing from customers they had already won 12 months ago (i.e., revenue growth excluding new customers)

Gross retention rate: how much of their revenue from 12 months ago came from customers that have maintained or increased their spend in the meantime. It might be clearer to think of it as the opposite of churn, where churn is the fraction of revenue from 12 months ago that came from customers who have since reduced or eliminated their spend.

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Hi Saul,

We are saying the same thing in different words.

Gross retention doesn’t include up-sells. There are two types of churn, dollar-based and customer-based. If you have a huge customer that drops out, your dollar-based churn will be greater than your customer-based. Let’s say you have 10 customers but 1 makes up 30% of your revenue. If that customer churns, You will have 10% customer churn but 30% dollar-based churn. I was just pointing out that it is apples-to-apples to use dollar-based gross retention.

And net retention is for existing customers (not new ones). You would use the prior years’ customers to see how much more they are spending. Once again, this does not include new customers.

Best,
Fish

3 Likes
18

Gross retention rate: how much of their revenue from 12 months ago came from customers that have maintained or increased their spend in the meantime. It might be clearer to think of it as the opposite of churn, where churn is the fraction of revenue from 12 months ago that came from customers who have since reduced or eliminated their spend.

I’d merely suggest that the phrasing be amended as the ‘complement’ to churn where gross retention + churn = 100% ?

Okay so in the mid- to high-90’s, they’re basically saying they don’t lose customers, much.

Future values of this metric could realistically only be downward, in the future, and should be watched as a sign of either dissatisfaction or increasing competition, I guess?

All in all, this has been a positive learning for me, as yesterday I decided I was more than a little suspicious of the DBNRR at “>130” for 17 quarters in a row or whatever. This mention of DBGRR had me rather worried, for an hour, or so.

Thanks.

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The change in defining $100K and $1M customers was made during the fall investor day. You can find the link to slides with the updated numbers here. Those numbers match the ones being referenced today.

https://discussion.fool.com/thanks-simpleisbetter-i-appreciate-t…

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Perhaps some of the companies grew over the past year. Now they are considered to be part of a higher tier?