DDOG with a nice AH bump

Investment Analysis Clubs Saul’s Investing Discussions
29

$12 billion is just a lot for a company that surpassed $300m in TTM revenue less than 24 hours ago!

Me too Bear. Still keeping a position. They’re great. But it’s upside from here right? DataDog checks all the boxes but market cap getting ahead of itself, maybe? Will the multiple continue to expand beyond 40? 45?

But that means more potential if we’re right about the company.

That’s the thesis anyways. I see what Elastic is doing. The totality of where Elastic is used is amazing. Without going through the full list, dozens of companies use Elastic in their product offerings. And then many many more use Elastic in a home grown solution to accomplish these use cases. So Elastic has invested (heavily) recently and currently to make their platform do all of these things out of the box. And that investment has gone side by side with massive scale out of their hosted Elasticsearch Service. As well as building out personnel and infrastructure as they see enormous opportunity to go and get. These efforts succeed or fail. There is risk, but much opportunity.

But just looking at SaaS. Comparable quarter to current is $10M. They did $17.5M in SaaS last quarter up $4M+ sequentially. So if they only add $2.5M this quarter, SaaS accelerated to 100% growth (from 71%). Is that not worth the investment?. And because it comes from $10M, it’s easy to visualize the growth. Each million over $2.5M is 10% more growth.

Below is a discussion on ESTC spending, sorry to high Jack the DDOG thread.

Now, turning to profitability, which is non-GAAP, gross profit in the first quarter was $65.7 million, representing a gross margin of 73.3%. Total subscriptions gross margin was 80.2%, up slightly sequentially. We are tracking well relative to our expectations. In the near term, we will continue to invest in our SaaS business, which will remain a modest headwind to gross margin overall.

Turning now to operating expenses. We remain focused on investing to drive top-line growth. As a reminder, we changed the timing of certain events and hosted our global all-hands meeting in Orlando in May. This was reflected in all the operating expense lines. This shift in timing towards Q1 does not impact the full-year expense total.

Sales and marketing expense in Q1 was $47.1 million, up 65% year over year, representing 52% of total revenue. Our overall approach to sales and marketing investments remains unchanged. We will continue to add sales capacity and expand market coverage as we drive growth and expect to realize leverage gradually over the longer term as we scale.

R&D expense in Q1 was $29.4 million, up 76% year over year, representing 33% of total revenue. As we said before, we are increasing our investments in R&D this year as we continue to invest heavily in both existing and new products and features.

Darth

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“Why be in Motley Fool if you feel that way? David Gardner has always said he wouldn’t buy a stock unless it was being attacked for being overvalued.”

Excellent point above, especially for these current times during this market “rotation” away from high growth!

Let’s not forget that David Gardner has also said that he would prefer to buy a stock at or near the 52 week high because he believes that “winners win”. With that said, there is plenty of seats remaining on the DDOG bandwagon! Don’t be afraid! Jump aboard! I’m just glad I bought my tickets when they were on sale!

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Chris, I realize that making comparisons is hard because the data is iffy. That said, I stand by the need to take into account where on the “S” curve the technology is. That and not the age difference between the two companies was at the core of my post.

Denny Schlesinger

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Bear: I’m trimming DDOG a bit today. $12 billion is just a lot for a company that surpassed $300m in TTM revenue less than 24 hours ago!

Saul: Why be in Motley Fool if you feel that way?
As someone just wrote, Datadog is obviously a “force of nature.”
You know, you can never make a quadruple on a stock if you sell it because it’s up 20%.

I’m on these boards at the Motley Fool for these awesome discussions! :slight_smile:

The phrase “force of nature” doesn’t help me. Is it a force of nature like Netflix, or Chipotle, or Amazon? For the record I think Amazon is a reasonable “buy” right now (and most always), but Netflix and Chipotle have issues. In large part, those issues have to do with the valuations of the companies vs their TAMs.

DDOG probably isn’t anywhere close to running into its TAM. But you say we can’t quadruple our money if we sell now. Saul, for DDOG to quadruple it would have to become about a $50 billion company (I know 12b x 4 = 42 billion, but you have to bake in some dilution too). I’m sorry, but if you’re betting on that in the next few years, you’ve got some serious rose colored glasses. If DDOG even doubled it would be quite a large company. The only companies we’ve discussed much here (in the last year or so) that are over $30 billion are Shopify and Square. And they have many times as much revenue as DDOG.

DDOG may very well get to a $30 billion valuation or even 50 billion. But it will take many, many years.

Bear

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Are you saying that because AYX is an older company, it’s further along it’s S Curve?

No. The “S” curve applies to technologies, not to individual companies selling the technology. But a company successfully selling that technology will also exhibit the grow pattern.

IBM has enjoyed many “S” curves because it has been successful in many technologies.

The market, in all it’s infinite wisdom, did not have any problem bidding up PagerDuty to 23 on the day of it’s IPO, then see it’s share price go up another 50% over the next few months, only to now be trading at half of it’s IPO price as well as 60% of it’s ATH.

I didn’t say that the “S” curve is all that matters. The market is a complex system driven by “animal spirits” to misquote Lord Keynes.

To get back on track, my point is that relying on a set of numbers to compare stocks is a common idea but a misguided one because we are dealing with complex systems.

Denny Schlesinger

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Well it’s now up 21%. Today! Why be in Motley Fool if you feel that way? David Gardner has always said he wouldn’t buy a stock unless it was being attacked for being overvalued. Every stock in my portfolio is “overvalued” but the portfolio is up about 6 percentage points today. If you want “value” you can buy the IJS, S&P, Dow, Russell, Nasdaq, all of which are down today.

As someone just wrote, Datadog is obviously a “force of nature.”

You know, you can never make a quadruple on a stock if you sell it because it’s up 20%.

I have a small position in DDOG (1% only). I couldn’t add to it because it was too expensive. If it would grow 4x it would be a $45B company. Maybe that will happen. If we look at the Salesforce.com example (the poster child of a successful SaaS company that has grown into a dominant megacap: https://discussion.fool.com/crm-a-case-study-for-saas-companies-… )
then we can see the path that DDOG could take. Ultimately, DDOG will be valued on FCF and growth of FCF.

Starting with revenue growth and gross margins we might get to an estimate of FCF margin. Let’s do some math:

TTM revenue is $310M and the revenue growth rate is 88%. Revenue growth is still accelerating which is very nice. We need to make an assumption on future revenue growth to arrive at revenue. Let’s assume that DDOG can grow 85% (on average) for 5 years. You get TTM revenue of about $6.7B after 5 years. If they grow only 70%, 60%, and 50% on average then the TTM revenue after 5 years would be $4.4B, $3.25B, and $2.35B, respectively.

Gross margins are 76% and have been in the range of 73%-79% for the past 11 quarters (as long as data was available). So let’s assume gross margins are going to stay about the same at around 76%. By comparison, CRM has gross margins in the low 80%s (if I recall correctly). AYX has gross margins of 92%. Gross margin is will be an important determining factor in how high the FCF margin can be. 92% > 83% > 76%.

CRM has had a consistent (more or less) FCF margin of around 21% for many years. AYX is targeting FCF margin of 30-35% at scale. A question is where will DDOG end up at scale. Will it be lower than CRM because it has lower margins? Or will DDOG manage to be operationally more efficient than CRM at scale? With lower gross margins (76% versus 83%), I think it will be a real challenge for DDOG to have FCF margins above 20%. Perhaps someone can argue that DDOG can be more operationally efficient that CRM but I’d love to hear the reasons.

TTM FCF after 5 years:


5yrGr  TTMrev    FCFmar   TTMFCF
85%    $6.7B     20%      $1.34B 
70%    $4.4B     20%      $0.88B
60%    $3.25B    20%      $0.65B
50%    $2.35B    20%      $0.47B

So what multiple on FCF should a company at scale have? Well, if the revenue growth rate is higher then it deserves a higher multiple. Currently, CRM as a TTM FCF multiple of 43 and it’s growing revenue at 25%. The highest FCF multiple CRM ever had was 73 and it was a $4B TTM revenue company growing at around 35% per year. In the rosiest of rosy scenarios can we give DDOG a TTM FCF multiple of 100? It seems high to me but let’s say it manages to grow on average 85% per year for 5 years and then is still growing 60% after 5 years. Seems very high but let’s crunch the numbers:


5yrGr  TTMrev    FCFmar   TTMFCF  MktCap  Shares  Price  CAGR  FCFmult
85%    $6.7B     20%      $1.34B  $134B   388M    $345   54%   100
70%    $4.4B     20%      $0.88B   $88B   388M    $226   42%   100
60%    $3.25B    20%      $0.65B   $65B   388M    $168   34%   100
50%    $2.35B    20%      $0.47B   $47B   388M    $121   25%   100

In the above calculation I have assumed 6% per year share dilution starting with 295M shares today.

Personally, I am skeptical that DDOG will maintain an 85% growth rate average for 5 years. I think, though that 50-70% is a reasonable guess.

I think that FCF margin of 20% is possible.

I think (just my opinion) 100x TTM FCF after 5 years is too rich. Perhaps, if CRM has a 43 multiple and DDOG is still growing revenue twice as fast (around 50%) after 5 years then it might deserve a multiple of 85. This would result in a share price range from $103 to $192 and a CAGR between 21% and 37%.

So what did we learn from doing this exercise (I know there are a lot of assumptions)? Well, even a company like DDOG that is one of the most highly valued SaaS companies in our universe can still achieve an outstanding return going forward. This is not based on EV/Sales but on a multiple of cash flow.

So what are the ingredients for achieving the success that CRM achieved? Why is Saul so willing to pay up for DDOG and ZM? I think he sees their dominance as much more assured than ESTC’s dominance. I also think that he he sees their path to profitability and lots of FCF generation to be a lot more certain (because their already demonstrating it) than the certainly of profitability for ESTC which is still burning a ton of cash (and going in the wrong direction).

I know that I still like AYX the best. I haven’t been able to add to DDOG, but perhaps I need to do more thinking. I think that thinking will involve assessing my certainty of DDOG continuing it’s rapid growth for an extended period and continuing to show increasing operating leverage.

Chris

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I think some here are missing the point. Saul as I do, try to get in early and if any Company do reach say 50 bill, all well and good. There is a time to get in and time to get out and along the way, take profits, reduce a position to have cash for other opportunities and act accordingly. Let it run until it gets tired. There was a time when 25% increase on one’s port was more than acceptable, in fact downright incredible. How many have forgotten this? Protect your portfolio at all costs. Nobody knows on any individual Company what supposedly will be in a few years, just what’s happening now. Just saying.

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Well it’s now up 21%. Today! Why be in Motley Fool if you feel that way? David Gardner has always said he wouldn’t buy a stock unless it was being attacked for being overvalued. Every stock in my portfolio is “overvalued” but the portfolio is up about 6 percentage points today. If you want “value” you can buy the IJS, S&P, Dow, Russell, Nasdaq, all of which are down today… As someone just wrote, Datadog is obviously a “force of nature.” …You know, you can never make a quadruple on a stock if you sell it because it’s up 20%.

I have a small position in DDOG (1% only). I couldn’t add to it because it was too expensive. If it would grow 4x it would be a $45B company. Maybe that will happen… Revenue growth is still accelerating which is very nice. We need to make an assumption on future revenue growth to arrive at revenue. Let’s assume that DDOG can grow 85% (on average) for 5 years. You get TTM revenue of about $6.7B after 5 years. If they grow only 70%, 60%, and 50% on average then the TTM revenue after 5 years would be $4.4B, $3.25B, and $2.35B, respectively. Gross margins are 76% and have been in the range of 73%-79% for the past 11 quarters (as long as data was available). So let’s assume gross margins are going to stay about the same at around 76%.

Hi Chris,

What I meant by a force of nature is that most of our companies that are growing so fast have huge losses because they are paying so much for S&M to sign people up while the signing is good. Here is Datadog growing at 88%, which is accelerating, by the way, from 76% and 82% the previous two quarters, but it’s so easy to sell their product that they are at breakeven. That’s pretty remarkable. Their dollar based net retention rate is also about as high as it gets. Companies like this are always overvalued.

Here’s part of what Bert wrote to me in an email exchange:

I am glad you have a large position and that I was in some way responsible for you owning the shares. (Saul: His write-up was the most positive I had ever seen him write about any company that he had done a deep dive on… and if you don’t have a subscription yet to his newsletter because you don’t want to spring for a few dollars, you are out of your mind.)… And no, I hardly expected to see 132% growth in bookings - I am amazed, and it was more than a little positive to these old ears for them to talk about not having consulting revenue because users do their own installation. You have no idea how fantastic that is. I really do not totally know if I believe that either-but I suppose it must be so. I would love to see how that works in the real world but that is such a big thing for users.

Do you remember Nov 2008 when everybody sold out and then had post-traumatic stress syndrome and said “No more stocks for me. I learned my lesson! Fooled me once, can’t fool me again.”… And then they missed the next 10 years of a rising market (I was up 115% in 2009). Well I get the feeling that I’m seeing the same kind of post-traumatic stress syndrome now. People are saying rather all-knowingly “No more over-valued stocks for us. We learned our lesson. Fooled us once, can’t fool us again.” And this was a drop that didn’t even take us into negative territory for the year, or even close. It is a matter of perspective.

Saul

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And no, I hardly expected to see 132% growth in bookings<b/b>

Saul, you should know that’s not exactly correct. From the call immediately after the 132% comment:

But to give you an example of the variance between billings and revenue growth, we want to add a few comments.

First, we had a multimillion dollar deal which was renewed and billed in Q3 2019. This customer was not billed in Q3 three last year. In addition, we had one large two-year prepaid deal in Q3 2017, which was thus not billed in Q3 2018, but was billed again in Q3 2019. Adjusting for these two customers, normalized calculated billings growth would have been approximately 100%, still very strong and generally reflective of our strong Q3 sales.

Two large customers that were not billed in comparable quarter (Q3 2018) and will not be billed in next comparable quarter (Q3 2020)

Darth

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Hi Darth, that’s why all these companies tell us that Billings are lumpy. However, I’ll accept 100% :grinning::grinning:
Saul

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“No more over-valued stocks for us. We learned our lesson. Fooled us once, can’t fool us again.”

Saul,
What history do we have on making good returns over 12-24-36 months, when the starting point of the stock price is/was a 40 P/S or higher?

The 2017 and 2018 successes were off much lower P/S than what ZM, CRWD, DDOG received out of the gate.
ESTC and ZS both IPOd at “rich” valuations, and are lower in P/S today, yet not all that much higher in price than their IPO for the amount of time that has passed (about 18 months for ZS, 12 months for ESTC).

In 2018, SHOP was the outlier with a 24 P/S at one point, I recall.
In March-August of this year, a 24 P/S was handed out like candy.

Now we appear to have settled back down to just simply high P/S levels for growth stocks, vs extremely high. AYX, TTD, ESTC, MDB, ZS…all still over 15, which is vastly more expensive than value stocks, which means the market is rewarding their growth rate with multiple expansion.

Jan was largely a rebound from Dec drops. Feb thru July 26th in 2019 was a momentum play, imo.

I have no doubt many here can make good gains on ZM, CRWD, and DDOG in the short-term.
Don’t see how anyone can expect a quadruple, as you brought up, anytime in the next few years, as it would be market cap territory that is not common for sub-$1b or sub-$2b revenue runrate companies.

In today’s constantly changing/evolving/disruptive landscape, to imagine holding a $12/15/20b mkt cap for 3-4-5 years, when their P/S is currently over 40, seems like a setup for a fairly low CAGR in years 3-4-5, as you are getting multiple years priced in TODAY.

I get it…no one is supposed to argue with Saul, due to his track record…but here is the thing no one seems to grasp: there is no track record on $10b+ mkt cap companies with P/S over 40. From what I can tell, Saul made great CAGR for decades and P/E was a factor. I understand the “why” behind the switch to cloud/saas focus. In 2018, there was little care about profitability. Now, all of a sudden, we like to say there is. So what changes in 6-12-18 months from now?

That smacks of momentum investing, with no reasonable expectation that a stock like DDOG will be held for 4 years, while sustaining a legacy-Saul-average CAGR of 25%+/year. And there is nothing wrong with momentum investing, but I have seen it stated by most on this board that they don’t believe they are momentum investing.

So, again: I am unaware that there is any established track record on $10b+ mkt cap companies with P/S over 40.
If there is, please let me know…I will be happy to be wrong.
Otherwise, you are declaring a truly new paradigm, and that “this time it’s different”.

Dreamer

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Hi Dreamer,

It’s oh so very easy for you to be an expert on my track record, when you’ve never, EVER, told us anything about yours, or even what stocks you are invested in. That sure makes it easier to sound smart compared to those of us who tell every month how we are doing and list our stock positions so people can verify our results for themselves.

Saul

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Hi Dreamer,

It’s oh so very easy for you to be an expert on my track record, when you’ve never, EVER, told us anything about yours, or even what stocks you are invested in. That sure makes it easier to sound smart compared to those of us who tell every month how we are doing and list our stock positions so people can verify our results for themselves.

Saul

I have a side board, Where Angels Fear to Tread, where I tend to list trading activity. For a while there (April-July) I was probably too detailed…spamming my own board practically.

So while I haven’t always put this stuff on Saul’s board, I do post it on TMF.
My free time has been cut quite a bit due to new work role I am ramping up in…so since mid-Sept I have posted less. But prior to that, I was posting on my board so as not to spam this board too often.

I did that out of respect, and because I know this board prefers quality over quantity and over short “update” posts or details on trades or thoughts on entry points, etc etc… So I post that elsewhere.

You once accused me of shorting a stock because I had a contrarian view…which is funny because I have yet to ever use options or short a stock.

Rather than getting all defensive, why is it so hard to just respond to the point I am making, which, again, is: I don’t believe any track record exists (not just by Saul…by anyone) in making solid CAGR by buying stocks of over $10b mkt cap that have P/S over 40 at time of purchase.

Now that I think about it, biotechs may qualify for the above, but I consider that a separate niche…the whole possible-blockbuster-drug-approval reasoning to buy a stock.

Dreamer

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I get it…no one is supposed to argue with Saul, due to his track record…but here is the thing no one seems to grasp

…

Dreamer,

You come off very antagonistic when you say we’re all failing to grasp something.

May I make a suggestion? Slow down. Edit your posts. Maybe try to make them shorter. Make your point and leave it at that.

That said, I’ll come to your defense. Your point is a good one! I am unaware that there is any established track record on $10b+ mkt cap companies with P/S over 40. If there is, please let me know…I will be happy to be wrong.

When you add generalizations about what people on this board may believe, it weakens your point. (And in reality, GauchoChris and I are saying similar things to what you are saying.)

Thanks for allowing me to make this suggestion.

Bear

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100% agree Saul…

Even more so as a few months ago Dreamer wrote this on his own board…

“Saul’s board is a dangerous blinder-wearing echo chamber now, imo.
Probably won’t post there much anymore…don’t see the point, as no one wants to discuss upside and CAGR”

(Me)I cannot stand hypocrisy.

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Even more so as a few months ago Dreamer wrote this on his own board…

“Saul’s board is a dangerous blinder-wearing echo chamber now, imo.
Probably won’t post there much anymore…don’t see the point, as no one wants to discuss upside and CAGR”

(Me)I cannot stand hypocrisy.

  1. Thanks for lurking.
  2. I wonder if I wrote that when Saul told me ZM wasn’t a 60-70 P/S, because he had the share count incorrect. Then once it became clear they really did have a P/S that high, it made ZERO difference. Basically, an investment was now worth twice the mkt cap and twice the P/S, but absolutely zero change in approach to that investment. That is when I felt the board was starting to jump the shark in terms of valuation being utterly ignored. Gorilla Game posters didn’t understand why anyone would question JNPR being a $60b company in early 2000…I was getting a similar vibe. They were an echo chamber, too.
  3. Not sure what the hypocrisy is…outside of a flurry of posts today, I am not exactly posting a ton to Saul’s board much anymore. To the point he accuses me of never sharing info on what stocks I own, because I do so on other boards (which, as branmin illustrates, are read by many that frequent Sauls board).

Have a great day!
Dreamer

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I thought this thread and discussion over the last couple days was absolutely fantastic! As always, I learned a lot and appreciate everyone’s points of view, and agree with some more than others.

I do find the last few more personal insults/attacks/defenses to be out of character with this board’s usual MO of trying to help everyone profit as best we can in a currently difficult market for our stocks.

I do hope Dreamer keeps posting here as I find his insights valuable, as I obviously do also of Saul’s, Bear’s, Chris’ and others.

Hope the board continues to work cooperatively in the future.

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Regarding highest CAGR, I think that’s everyone’s goal. At least everyone’s goal who puts any effort whatsoever into the stock market and thought about it for more than a few seconds. One may believe DDOG has higher appreciation potential measured by CAGR compared to ESTC, even though ESTC is priced lower! Others seem to weigh price ratios and conclude ESTC has the highest appreciation potential. Obviously reality is more complex than that. I’m not a big fan of ESTC. I turned sour on them their first quarter they announced as a public company and haven’t changed my tune since. I’m not impressed with the markets they are entering. I’m not impressed with a company expecting to have anything more than a money pit when they buy Endgame and try to compete successfully in the very crowded endpoint security market. How many directions are they going to be pulled in? Datadog, meanwhile, is adding new products, but they are complementary, much more so than ESTC’s.

So I think the real question we want to ask is; how realistic is DDOG’s price? And by saying that, I don’t mean throw out a bunch of growth rates over the next few years and price multiples, and compare that to ESTC. I don’t think that’s helpful. It’s misleading and a waste of time IMHO.

https://www.datadoghq.com/pdf/dd_SolutionsBriefsTemplate_181…

At the same time, tools and services that are native to collecting performance data
from cloud environments do not always have robust support for legacy platforms run on-premises.
Thus, many engineering teams find it necessary to run separate tooling for their on-premises and
cloud environments. This can be problematic however, when components from public cloud and
on-premise environments depend on one another - “eyeball” comparisons are tedious and can lead
to false insights as performance data may not totally match up. The potential for mismatched data
is exacerbated if multiple public clouds are in use.

Datadog provides robust integration into a number of commonly used public clouds and
virtualization platforms used on-premise, and can also be run on bare metal on-premises servers.
Data is normalized against a universal timescale and tagged with metadata from a common
taxonomy, allowing infrastructure metrics, application traces, logs and discrete events from
multiple public clouds and on-premises environments to be ingested, queried and analyzed
together on the same platform.

When I read about Datadog, I am reading references about how it’s cloud native architecture could possibly give them the same advantages that Zoom and Crowdstrike give them, in this cloud era where the incumbent solutions are on premise based and simply do not work effectively with cloud based solutions. Splunk just paid $1.25 billion for $25 million/yr SignalFX, for a cloud based APM solution to try and enter that space and compete effectively with Datadog.

There seem to be two ways to approach this; 1, say the P/S and market cap are too high, and pass, stick with the ESTC’s of the world, or understand or try and understand what the competitive advantage is and the just how realistic the market is valuing DDOG. What the market assumes and how realistic those assumptions are. because we all know by now the market is not the most sensible when it comes to assigning valuations on companies. But I’d rather put more effort into having a good understanding on DDOG now, given the size of the opportunity and the crowded space. The incumbents are going to be trying to catch up through acquisitions and have a pieced together solution to try and compete with DDOG.

So how many hurdles are in the way of hitting that $1 billion run rate within the next few years which could actually give DDOG owners reasonable price appreciation potential. We can’t cry over spilled milk about nothing like MDB coming public at 12x sales anymore.

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I don’t believe any track record exists (not just by Saul…by anyone) in making solid CAGR by buying stocks of over $10b mkt cap that have P/S over 40 at time of purchase.

If we stick to SaaS or SaaS-like companies then I believe your statement might well be correct. However, was there ever a SaaS stock that had a valuation >40 EV/S??? I mean prior to 2019 because I don’t think that a few months is a long enough timeframe to establish any track record. So there can’t be any track record to your statement/question. I suppose this brings us back to your other statement: “is this time different”. That’s where the debate of this argument lies. Can we make money by buying shares of high EV/S companies? And then if so, is this the best use of our investment dollars??

Saul thinks so because he’s not selling. Dreamer thinks no because he’s not buying.

My opinion is we won’t know until we see the result. Saul thinks DDOG will be a great investment because he sees signs of that company becoming a monster. Growth, business model (low OpEx), profitability. Dreamer thinks (I assume) that it’s too expensive and that with technology changing more quickly than ever we can’t predict where DDOG will be in a few years. He thinks this will lead to a lower CAGR than he might get with other investments.

Going back to my recent CRM analysis, we can see that it is possible to make a great return even if we buy for a high price. The highest EV/S that CRM ever achieved was 17.6 in 2005. The price was about $11 per share. So if we had paid double of the highest valuation (i.e. a EV/S of about 35) then we would have had a gain of 636% in 14 years or a CAGR of 14%. That’s not a bad return but it’s also significantly below Saul’s long term CAGR of >25%. The 14% CAGR is certainly in the realm of possibilities. However, it might also be possible to ride DDOG during the hyper growth and then sell when it slows down; this could theoretically give a higher CAGR than 14%. This would be the likely scenario for Saul to follow, I think.

So can DDOG do better than CRM? That is certainly a tall order. Can DDOG do as well as CRM? That’s still tough and making that call now might mean taking on more risk than others are willing to take. But since DDOG already should such great characteristics of a great company, the deck is stacked in favor of DDOG become a CRM.

So to recap some of CRM’s characteristics:

  1. high FCF margin early on: around 20% FCF margin at the time of the IPO when CRM was smaller than DDOG is now.

  2. acquisitions paid for by debt and cash rather than equity: CRM limited its dilution which resulted in higher returns for shareholders. Can DDOG do the same? This is still unknown.

  3. maintained market dominance through its 20 year history: this enabled CRM to maintain pricing power and gross margins. Will DDOG be able to maintain such market dominance for many years? I don’t know.

My opinion is that DDOG is currently a great company and it appears that this will continue into the near future. I agree with Saul on this. But for how long, I do not know. I agree with Dreamer that it’s expensive and there are uncertainties about the future. I have a small position that I plan on keeping. I think that I will keep watching DDOG but I am reluctant to add at current prices. I may miss on an opportunity and I’m ok with that since I have other opportunities. I may get a chance to add more if the price drops in the future. The lock up expiration in February may provide such a chance, or not. We’ll see.

Chris

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Saul:

Where were you when I was in WPRT back in early 2011. I was pretty happy at first since it went from ~$15 to ~$40- almost tripled in one year. I was impressed. Then they told me ‘hold on to your winners’. I thought that was an interesting concept and I did. When it started to drop there were always some Fools talking about the potential and the benefits of holding etc… it went further down…and down…until it was only worth a couple of dollars. I sold most when it came back close to my entry point but kept some in hope of a comeback. Many Fools were still quite enthused by it. But it fell down to a couple of dollar a share before the MF finally conceded.
That was one of the first stock I bought from the MF recs. They have good recs in aggregate but I just happen to choose the wrong one. I did not see your post during that time (2011-2013 or 2014). I wish I did.

tj

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