DDOG with a nice AH bump

[LifeOfDreamer]

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

[PaulWBryant]

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

[branmin]

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.

[LifeOfDreamer]

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

[foodles]

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.

[12x]

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.

[GauchoRico]

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

[thejusticier]

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

[FlyingCircus]

The assumption of 85% revenue growth for 5 years is way too optimistic. 50% would be more realistic, simply because of math. Every quarter requires sequentially increasing total additional sales, to keep the growth rate at 85%.
From 100m, +85m to 185
From 185, +155m to 345
From 345, +290m to 635
From 635, +475m to 1171…

10x current sales in 4 years?

[JLodie]

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.

Bear

Just as Bear offers a suggestion to Dreamer, let me offer one to Saul that might make this board a more open and friendly place:

Slow down. Edit your posts. Maybe think about the actual intentions of someone’s post, or ask yourself, is this person attacking me? Should I attack them back?

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…

Saul

Are you responding to their actual question? Are you offering anything of value in response, or simply attacking because they’ve offered some alternative view? Dreamer’s post had no implications of being an expert of your track record and sure didn’t seem like an attack. Your response is a head scratcher, comes off as adolescent, and essentially squashed a legitimate and worthwhile discussion.

So many people get shut down on this board for cluttering the board with useless posts. Where is the value that response? Or in gloating about a 21% gain on DDOG? How does this prove it’s not “too” expensive? Or, I’m up x% over the past 3 days vs S&P, see I was right. Serious? Why post analysts’ reports that support your stock, but ignore the ones that don’t?

You get a pass because it’s your board of course. And perhaps that’s fair given all you’ve contributed to the community, that you’ve earned the right to do what you want here. I think though if you held yourself to the same standards as other “visitors” then this could be an even more wonderful and valuable place.

You’ve also obviously earned the right and privilege, simply by accumulation of years on the planet, let alone having an enviable stock track record, to not be so sensitive to what others say or post here. Let’s have some real discussion and be open to what others are asking. People are not attacking you. Most have legitimate questions and are looking for some help through the process when things don’t make sense for them.

I was attracted to this board a long time ago because growth at a reasonable price made a lot of sense. Or the idea of finding growth that the market hadn’t yet realized. There was a sense and search for, gasp, VALUE, in high growth stocks. This has morphed into value simply DOES NOT MATTER! Let’s even be proud that we’re holding stocks that others think are expensive. This time IS different. …Reaaally?

I am relieved that Bear, Dreamer, and others are at least asking the question. When is a stock TOO expensive? What are my expected returns if I start out at such lofty levels?

Saul, I do sincerely appreciate everything you do and have done to enrich our lives with this board. Let’s continue to keep the discussions open and welcoming to all.

Thanks,
Jeff

[tchalla]

Thanks for your post Jeff

I like to look at this to remind myself on the art of online disagreements and how to do it well

http://www.paulgraham.com/disagree.html

TLDR version
https://en.m.wikipedia.org/wiki/File:Graham%27s_Hierarchy_of…

Thanks to all contributing authors - I appreciate the diversity of perspectives

[SaulR80683]

Hi Jeff, you are probably right. I shouldn’t get so annoyed at the little snarky comments from people who never share how they are doing. But you are on the sidelines and I have to deal with them every day. Let me review, for myself as well as you what happened.

Early on in the thread Dreamer wrote:

Still dont get why Datadog should get double the market cap (and more than double the P/S) of ESTC that is growing at 60% in their q1 w expected $415m for full FY, yet would be half the market cap.

I figured that that was a reasonable question and answered as follows:

“Could it be because Datadog is at breakeven while Elastic’s losses have increased each the last three quarters from 16 cents to 28 cents to 32 cents.

Or maybe because Datadog’s rate of revenue growth the last three quarters has been accelerating from 76% to 82% to 88%, while Elastic’s has descended from 70% to 63% to 58%.

Or maybe because Datadog had POSITIVE Operating Cash Flow of $3.8 million this quarter (and $10.8 million in 2018), while Elastic had NEGATIVE Operating Cash Flow of $31 million near as I can figure over the last three quarters.”

All factual. Then I asked a legitimate question:

“Now tell me why anyone WOULD choose Elastic over Datadog? Because it’s “cheap”? Cheap stocks are generally cheap for a reason, or several reasons.”

Dreamer responded, with what I considered very snarky:

Because the goal is CAGR in my port…not accumulating companies with great stats.

I couldn’t believe it! The goal is CAGR in HIS portfolio. Well how is he doing? He’s never told us a word. He says we should go over to his board because he once posted his positions there some time ago.

And he doesn’t waste his time “accumulating companies with great stats”???

So accelerating revenue growth, just break even on net income, and positive cash flow are “just great stats”? They are the essence of investing. While Dreamer is being so smart and investing in Elastic with slowing revenue growth, large losses, and cash flow losses, because he wants “CAGR”??? Tell me how that made any sense to you!

So then more from Dreamer:

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.

Okay, more snarky comments. I gave clear reasons for preferring Datadog (see above). He gave none for preferring Elastic except that it was cheaper. So he’s saying no one is supposed to argue with Saul. People disagree with me all the time (on Shopify, on Square, multiple times on Mongo, on Shopify, for example), but we never have these arguments because people are polite and try to help the others understand, not call names and accuse one of momentum investing when almost all of my major stock positions get held for over a year, and many if not most for over two years. That’s momentum investing???

And it was at that point that I finally had it up to my ears and wrote:

“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.”

And then I had to deal with you, coming in out of the blue, with almost no board history, saying so sanctimoniously:

Are you responding to their actual question? Are you offering anything of value in response, or simply attacking because they’ve offered some alternative view?.. Your response is a head scratcher, comes off as adolescent, and essentially squashed a legitimate and worthwhile discussion.

If you don’t think I was offering something of value, maybe you should reread the thread. I didn’t squash any part of the discussion and was involved in informational exchanges with Gaucho Chris and Bear and several others on this thread, I just got fed up with Dreamer’s nonsense.

And Jeff, if you think I’m too adolescent and you don’t like my tone, you don’t need to stay on the board. No one is making you. I’ve worked hard and consistently to keep this board as a place where we exchange ideas and help each other to discuss and evaluate high growth stocks. This board is called Saul’s Investing Discussions, and if you don’t like the way I run it, it’s easy to start your own board. Just click on the box at the top of each post which says “Start your own board”.

Saul

[branmin]

Sorry, you can only recommend a post to the Best of once.

[addedupon]

I very much agree with Denny’s view on the compelling importance of the S curve and its unquestionable reality.

OTOH, in is useful to note that bootstrapped companies such as Alteryx usually have much longer early stage periods than multiple VC funded companies such as DDOG.

I think AYX still has a long way to go in its rapid growth stage, despite it relative age as a company.

I’m always on the lookout for outstanding bootstrapped companies. To flourish without VC funding or major angel investors, they necessarily must be led by founders who not only have considerable vision, but who are also capital efficient and excellent executives.

MSFT, AAPL, FB, CSCO, SAP and even KO were bootstrapped.

FWIW, among our stocks, AYX, RNG, TTD, APPN, UI, and TUFN were pretty much bootstrapped, i own all of them, and think they have accelerating growth ahead.

[LifeOfDreamer]

Dreamer responded, with what I considered very snarky:

Because the goal is CAGR in my port…not accumulating companies with great stats.

I couldn’t believe it! The goal is CAGR in HIS portfolio. Well how is he doing? He’s never told us a word. He says we should go over to his board because he once posted his positions there some time ago.

And he doesn’t waste his time “accumulating companies with great stats”???

So accelerating revenue growth, just break even on net income, and positive cash flow are “just great stats”? They are the essence of investing.

---

Saul,

1. Nothing snarky about wanting best investments over best companies.
2. “Some time ago?” I guess if that is how you want to refer to my updates on my board on what i bought/sold and why, as recent as last week. Ok.
3. Pretty sure essence of investing ahould factor in price and value too - both current and projected.

I am not sure it matters how zm crwd or ddog do in 12-18 months from now, as recent history suggests, they will be out of your port once growth drops a couple ticks. Which is a form of momentum investing basically.

Good luck to you.
I wont bother posting here anymore because you make no honest attempt to address my valuation concerns, nor do you need to.

By the way, google “Datadog and open source” sometime.

Dreamer

[XMFALieberman]

Reporting xx22’s post. Let’s go ahead and end this thread now and get back to investing.

[rliu]

Let’s just talk about high growth stock here instead attack any stock just someone’s preference here IMHO, our goal pretty much the same which are accumulating wealth and learning more knowledge in the same time.

Rick

[Texmex]

Very good discussion. Dreamer, I like your posts and hope you will continue to post here.

I do have a large ESTC position partly because of its valuation of course plus the company’s projected growth rates this year. I do have a question perhaps for Darth. You say:

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.

Do you feel Elastic will have difficulty in selling their new products the way TWLO is seeing elongated sales cycles with Flex? Elastic APM, SIEM, ES OTOH are not sold separately like Flex. People pay based on data usage and the more products they use the more the data usage - am I correct? So, my guess is the sales process should not get elongated as long as the products are of value to the customer. What are your thoughts?

[SaulR80683]

I also reported #61572 and asked that it be deleted.
Saul

[Darthtaco]

Do you feel Elastic will have difficulty in selling their new products the way TWLO is seeing elongated sales cycles with Flex? Elastic APM, SIEM, ES OTOH are not sold separately like Flex. People pay based on data usage and the more products they use the more the data usage

That’s a good question and since most of these are new products (as in many don’t even have full quarter data yet) and placed into the proprietary licenses (ie the licenses that are prevented from being hosted by anyone other than Elastic)it’s very early innings so we don’t have much to go on yet.

The best place to go would be the conference call.

I’d like to talk about some highlights, and I thought I’d start with our preview of Elastic SIEM from our 7.2 release.

This is a new product that gives users accurate security analytics experience for ingesting, analyzing, and visualizing security related data. One thing I find exciting about Elastic SIEM is that you don’t have to be a security analyst to get value from it. To say you’re a DevOps doing logging with Elastic version 7.2, you can simply click over to the [indiscernible] in Kibana and automatically see an overview of various datasets, including KPIs for number of hosts, sales logins, and more. You didn’t have to install or configure anything, it’s all just there and just works.

You can even go a step further with an interactive drag and drop experience to deconstruct and document a timeline of events that you can then share with teammates from a single UI or as of our 7.3 release, you can use our Platinum level machine learning features to automatically detect and alert on cyber threats originating from events like unusual login activity.

That doesn’t sound like something that would have an elongated sales cycle does it? You’re already shipping data to your Elastic logging cluster. All you have to do is select SIEM from the Kibana dashboard and now you view your data set through a SIEm lens. If you like what you see, you start to tailor a new data set to ship the data for the SIEM use case. Do you need another data set? Did your cluster grow too big now? Do you need to upgrade your subscription level to get the machine learning for anomaly detection and alerting? How about checking out the APM and Infrastructure monitoring or other tabs in your Dashboard. What does your cluster look like now? Are you hosting? If not, should you?

Sounds like easy and mostly self service expansion to me.

While it’s still early days for Elastic SIEM, it will only get better over time with more features, like SIEM detection rules, user analysis, threat intelligence integration. Our product development approach for SIEM and other use cases is iterative. The goal is to have this magical experience where you deploy Elastic in the context of logging and suddenly through a single UI, you can do threat hunting, or ATM or infrastructure monitoring with very little effort.

And to achieve this, we’re continuing to streamline the ability to easily get started with and seamlessly transition between use cases.

In the logging metrics, APM, and uptime monitoring spaces, also known as the observability space, the market is trending towards that convergence of these use cases.

This plays to our advantage. Instead of users gluing UIs from separate tools together to solve a problem, they can instead store, search, and analyze all their data, all in one place from one UI. And we’ve made this an even more powerful experience by providing our users and customers with a simple unified pricing model that removes the friction for trying and adopting new products and features. I am excited to see early signs of these resonating with our user base.

So, you can get a sense for the ongoing momentum behind us building simple, fast, easy to use experiences for addressing many use cases.

All of the things I’ve talked about today SIEM, Maps, APM, logs, infrastructure monitoring, app search, enterprise search, and so on are significant engineering investments that have occurred under the proprietary Elastic license. Our strategy as a company is to continue to put significant investments into proprietary products and features.

Many of them are available under our free and default basic subscription. This means a user wanting to run our software to a SaaS can only deploy them via our Elastic Cloud. We believe this strategy is working and this quarter is particularly indicative of our strength to deliver on it.

Much more in the transcript:

https://seekingalpha.com/article/4288562-elastic-n-v-estc-ce…

And the Elastic Cloud is the only place to get these features, the OS version that AWS and others host doesn’t have them. That’s the strategy. It’s new. Momentum is strong it sounds like. SaaS had their biggest sequential gain ever last quarter and much more has been added this quarter.

But I would say that they still have to prove it. There is risk they don’t succeed, but if they do should be exciting to watch.

Darth