Elastic vs Datadog?

[PaulWBryant]

I outlined here some reasons I think Datadog crushes New Relic. https://discussion.fool.com/datadog-along-with-top-competitors-l…

Is Elastic another competitor in this space? It seems so to me. They’re growing faster than New Relic, but are they too destined to lose out to Datadog?

I guess it’s all murky to me. I can see how Datadog is selling their product the best, and it’s probably also the best run as a company in general. It’s a little harder to see how things will play out long term. New Relic seemed great until it didn’t.

I’d love to hear some others’ thoughts. Especially Darth who has been one of the champions of ESTC on the board.

Thanks!

Bear

[PaulWBryant]

Shay Bannon (ESTC CEO): When you look at logs, if you take a right turn you get into the observability space. You want to monitor your infrastructure, you want to monitor your operations and make sure that they’re up. If you take a left turn you quite quickly get into security, so the ability to look at logs not necessarily as operational data but as security events, and sometimes - most of the time - they’re actually the same data. https://www.youtube.com/watch?v=flKVDE33Q44 (around 15 minutes in)

The observability side seems to compete with DDOG and NEWR.
The security side seems to compete with CRWD.

Can Elastic have it all? Or a piece of it all? Is this company simply set up wrong? (Open source and all?) Or does the consistent 60%+ growth mean that they are offering something that customers need and want, and that the holistic solution could potentially be the best? Or that all could play nicely together (after all, DDOG uses Elastic’s code)

More questions than answers…I’m sorry about that. But it’s a confusing landscape to me.

Bear

[GauchoRico]

Can Elastic have it all? Or a piece of it all? Is this company simply set up wrong? (Open source and all?) Or does the consistent 60%+ growth mean that they are offering something that customers need and want, and that the holistic solution could potentially be the best? Or that all could play nicely together (after all, DDOG uses Elastic’s code)

More questions than answers…I’m sorry about that. But it’s a confusing landscape to me.

As I wrote yesterday in my review, ESTC concerns me the most. Here’s what I wrote:

ESTC (6.2%): ESTC’s growth has been stable around 60% for 3 quarters and next quarter’s guidance suggests that this will continue. No complaints there. They are not moving toward profitability. I also see possible cracks in the strategy. As I understand it, ESTC is the leader in logging and they are trying to leverage this to gaining traction in other areas. Is a common stack compelling for a customers when the other these other offerings (i.e. other than their logging product) are not the best? For example, for endpoint protection, why would a customer choose ESTC when CRWD is the best? ESTC seems to be trying to get customers by offering a lower price and a common stack. I’m not convinced that this will work out for ESTC, and could it be a reason why ESTC is not improving its progress toward profitability (i.e. is sales and marketing cost going to be continue to be high because it’s a big effort to gain customers? CRWD seems to be getting customers so effortlessly). This has me questioning whether I should own ESTC. I expect them to easily beat next quarter’s guidance but I wonder whether ESTC will be relevant in the long run. I don’t think their logging product alone will get them where they need to be to show a profit. I’m not planning on adding and may consider reducing my position. I’d love to see some more debate about ESTC…

DDOG and CRWD are effortlessly, it seems, adding customers and rapidly moving toward profitability. Here are ESTC’s customer count numbers:

4/17   2800
7/17
10/17
1/18
4/18   5000
7/18   5500
10/18  6300
1/19   7200
4/19   8100
7/19   8800
10/19  9700

Growing nicely and growing steadily. I understand that customers want ESTC’s logging product. ESTC wants to branch out but I am skeptical that they can be successful. I believe that ESTC needs to be able to sell modules outside of logging to become a profitable company. Let’s look at the Sales and Marketing spend together with the added customers:

Period Cust  Added  S&M($M) Spend/New Cust
4/17   2800
7/17
10/17
1/18
4/18   5000 
7/18   5500   500   28.5    $57K
10/18  6300   800   31.8    $40K
1/19   7200   900   19.7    $22K
4/19   8100   900   40.3    $45K
7/19   8800   700   47.1    $67K
10/19  9700   900   49.4    $55K

The S&M expense excludes share based comp. This is a very rough way to look at S&M efficiency and one might point to flaws (e.g. annual expense of user meetings, customers of varying spend and value to ESTC, etc.). Nevertheless, I think it’s good enough to get a picture of a company that is not gaining efficiency. To me this is not a good sign because 1) customers are accumulating so old customers should not cost much and 2) the percentage increase in customers added is declining. Again, selling multiple products/modules when a new customers is gained is a great way to increase S&M efficiency. CRWD is doing this with more than 50% of new customers now buying 4+ modules at the beginning. The lack of progress toward profitability is one of the main reasons why Saul doesn’t own ESTC. I think one has to believe that ESTC will be successful in their effort and their strategy to sell multiple modules. The just bought Endgame so there hasn’t been much time for them to show success or fail. It’s an unknown and it’s one that makes me nervous. Not sure what I will do (I have a few days left in 2019 to book a loss on my ESTC shares to offset my other booked gains…). CRWD’s success in selling more modules to new customers has now been proven. And since it seems to me that CRWD and ESTC will be competing in the EPP segment, I’d prefer to go with the proven winner.

Chris

[stocknovice]

This is much less deep or technical than Bear or Chris’s take, but here’s my current end of month rambling for ESTC. I share many of the same concerns, and in my case chose to exit the stock after earnings. I updated this entry yesterday after Chris’s excellent write up. Given where this thread seems to be going, I thought it might be appropriate to post before the end of the month.

ESTC – Last month I wrote, ”ESTC either shows strong growth and improved leverage in its 12/4 report or it gets the boot.” To Elastic’s credit growth was pretty good. To its detriment, calling for increased losses both sequentially and YoY was exactly the opposite of what I was looking for. Elastic clearly has a ton going on right now. Unfortunately, it’s becoming more and more difficult to see exactly where this scattershot approach toward profitability is going to hit its mark. In addition, I’m always leery when management seems to shift focus toward secondary numbers to gauge their business – in this case SaaS growth and varied TTM metrics – as opposed to more traditional, straightforward measures. Being honest, I don’t understand the business well enough to give them much leeway on the numbers. When you get right down to it, is Elastic anything more than a very good logging and search company trying to squeeze its way into some very crowded monitoring and security markets? I know that question might not be entirely fair, but I can’t say for sure I know the answer either. For better or worse, I found myself having Nutanix style “too hard” flashbacks after trying to take it all in.

That post-earnings doubt along with my prior assessment made ESTC a sell. However, I was out of pocket at the time of the release and missed the chance for an immediate exit. After reviewing things, I felt the initial 15%+ drop was overdone and decided to hold a few days in case the stock bounced back while I worked through my remaining reports. No such luck however and I ended up exiting on 12/9 with a 30%+ overall loss.

There are a lot of really smart people around these parts who like and value Elastic. I respect their opinions and will continue to follow their thoughts. In the meantime, I’m perfectly content to set ESTC aside in favor of other companies where I better understand the thesis. GauchoChris recently said he’d “love to see some more debate about ESTC” (https://discussion.fool.com/gauchochris-update-12232019-34371469…). Well, there’s my rationale for sitting this one out. I’m totally open to hearing why that might not be the right call.

[Texmex]

I second the idea of having a discussion on ESTC as an investment particularly given its competition with the better executing DDOG. Chris had the same thought. I think Muji felt ESTC was a good investment, I think I asked why not sure he responded. I recall Shikotus also thought ESTC was a good LT investment. I hold ESTC as they are clearly undervalued. Here is my 2c.

Company is executing well 60% grth is awesome second only to you know what. ESTC is focusing on 3 products - search (they are #1), logs/infra monitoring, and security. They believe these individual silos will collapse and these individual products will become features. Fyi DDOG says the same and have exactly the same strategy. DDOG is also competing in APM and security now. ESTC says one big advantage they have is everything will be 1 foundation. You will be storing everything in Elastic search. ESTC is trying to hasten the collapse of silos through their pricing which is based on consumption but not on devices. Do both of these things (1 foundation and pricing scheme) give ESTC a MOAT to become better than stand alone products? CRWD charges a lot for every endpoint for example. ESTC bought their APM product 2.5 yrs ago, DDOG bought theirs 1 y earlier, but clearly DDOG seems to be doing better in APM. I see a lot of comparisons between DDOG and NEWR but don’t see much of NEWR vs estc/kibana. Also unsure if in EPP if they can ever win against CRWD with its AI based multi customer data threatgraph. Best growth in near term is logging, and search in which ESTC is clearly #1. Company is executing. share dilution is not excessive - 10% in 9 month partly due to endgame acquisition. Billings are slightly slow as some fed deals went into next Q but Shay said they are still in play. At this point I do not see any point in selling ESTC. Near term if fed contracts come into the next Q and billings go up the stock should jump. Longer term the question to answer is the one I raised earlier.

[SaulR80683]

In an earlier post about Zscaler, Tinker wrote the following:

Compare that to Alteryx or Crowd (two hit stocks as well). Their numbers are “too good to be true” but yet they are true and their shares are hit as bad as Zscaler’s shares.

Well Alteryx and Crowdstrike shares were hit as hard as Elastic as well, or harder. So why invest in Elastic with growing losses and promises of more, when you can invest in Alteryx or Crowdstrike (or Datadog) that are all hitting it out of the ballpark, and not trying to see how much money they can lose the way Elastic seems to be? That seems to me to be a valid question. It’s not like you are missing a bargain because Elastic is down. Crowd and Alteryx are down too, a lot, and have much, much better prospects for the next six months or a year, which is as far as we can really see with any kind of confidence.

Best,

Saul

[12x]

I see more comparisons between DDOG and private companies than I do DDOG and ESTC. As investors, we seem to constantly compare public growth companies with one another. At the beginning of the year, it was “ESTC is eating SPLK’s lunch.” Then it was “ESTC is NEWR’s lunch.” When it turns out DDOG, at they time private, was eating NEWR’s lunch. At the time you couldn’t buy DDOG so it seemed to never be considered. And SPLK is just doing fine but the idea of buying a smaller, fast growing upstart gets a lot more appeal than buying a $20 billion 40% grower. So I think objectivity could be clouded there.

I don’t own ESTC for the reasons discussed here and I don’t own DDOG because it seems like someone could come along with a better mousetrap and I would be none the wiser. I do not understand the competitive landscape. I do understand it’s competitive and the same things that allow DDOG to grow fast (bottom up/viral product, easy to replace/adapt) could also cause a company to steal. DDOG’s thunder just as quickly as they stole NEWR’s. So lack of knowledge of the competitive landscape gives me pause. And it’s not like the market priced in anything other than strong continued growth. Compare this to AYX where we are just looking for a competitor period.

[sarksnz]

I think this thread nailed the proposition and challenges of ESTC perfectly.

ESTC is definitely a longer-term play, and the premise really is “if you buy Elastic for logging, you buy Elastic for other things”.

I’m a little unsure about this. From a developers point-of-view, buying APM because you’ve already got Elastic dealing with your logs makes sense, because the same group are making those decisions.

Security however is a completely different cost-centre. Enterprise search… probably tech team.

From my notes, the things to believe are:

1. Building on one foundation means more efficient development. If we improve one part of the stack, improve everything. → Ship value to customers faster. Built on top of single technical foundation → strategic advantage

2. Shay said “Used to be 3 concrete silos, logs, metrics and APM. Silos collapsing now”. That sounds reasonable, and ESTC is well positioned in all.

3. The pricing model is disruptive. Theres lots of reports of the expense of DataDog, but I’m struggling to see how much either actually is for a real-world deployment. Gross margins for ESTC are still very good.

So ESTC has a bunch of optionality, the core business seems robust, but it remains to be seen whether there is any advantage of “building on one foundation”, and in particular whether the sales force can convince anyone of that fact. Can ESTC jump out of the developer space into security? They also seem to be going after the long tail as opposed to the big fish which is a longer-term strategy.

The possibility of positive surprise seems to be there, but it some ways in the future which elevates the risk.

cheers
Greg

[Darthtaco]

Elastic’s op metrics are showing improvement. And gross margins are superb, particularly when looking at software only and not including pro services which is less than 10% of revenues. Software GM >80%.

Elastic has a huge footprint and I could only imagine what the total economic impact of their software is. The observability space is an infant market. And Elastic is an infant in THAT infant market. It’s something their stack is good at, just ask DataDog. And also ask why one of the top 5 use cases of DataDog is to monitor…Elastic. Their customer’s Elastic stack. What’s the economic impact of Uber and Lyft and Tinder and Mercado Libre and DataDog and all the other companies that have thrived with Elastic providing the search function that ultimately provides their end user product.

When we say Elastic APM, it really is just a pre configured Kibana window pre installed on the new versions of Kibana. Elastic has just made it a feature of their stack. There’s more too it and more plugins and things. But the point being it’s just a visualization tool. In a nut shell that’s what DataDog sells. A visualization tool. Elastic is the mastermind product that makes various data provide value for virtually limitless uses.

It being Christmas Eve and all I don’t have too much time to get into it now. But Elastic has longevity in their growth. High 50’s low 60’s is going to be the range. The bottom line is improving. But they have work to do. They still have to build out the availability of the SaaS product which is expensive to get started.

But observability space is but one space they have presence. So direct comparison to DDOG or Splunk is missing a whole world for Elastic. When you have such a powerful tool as Elastic the uses are infinity which is their addressable market.

$6B market cap seems ridiculously low for their potential. Which is a huge potential.

We’ve talked about the disruptive pricing model that Elastic is bringing to the space. But something Elastic recently brought up is worth discussing too is how their SaaS could save organizations thousands to tens of thousands in data transfer costs. Read more if you curious here:

https://www.elastic.co/blog/remove-the-hidden-network-costs-…

Darth

[PaulWBryant]

Chris: This is a very rough way to look at S&M efficiency

I think it might be too rough. Try it for AYX and it might look even worse, but I don’t think that means we should be concerned.

Chris: CRWD’s success in selling more modules to new customers has now been proven. And since it seems to me that CRWD and ESTC will be competing in the EPP segment, I’d prefer to go with the proven winner.

It is true that Crowdstrike is killing it in an epic way right now, and I too would like to ask Elastic why they would march headfirst into competing with them. However, maybe they’re going after a different market segment within endpoints?

stocknovice: Unfortunately, it’s becoming more and more difficult to see exactly where this scattershot approach toward profitability is going to hit its mark.

I suppose so, but my problem is that I can’t really say any different for MDB, SMAR, OKTA, and many others. I have to invest in something. As long as revenue numbers are good, I either have to trust that profitability will come, or find some other differentiating factor. You couldn’t have even said that in the case of NTNX or other “too difficult” stories.

Greg: So ESTC has a bunch of optionality, the core business seems robust, but it remains to be seen whether there is any advantage of “building on one foundation”, and in particular whether the sales force can convince anyone of that fact. Can ESTC jump out of the developer space into security? They also seem to be going after the long tail as opposed to the big fish which is a longer-term strategy.

I realize my questions were similar to these, but reading yours and reflecting I wonder, why are we asking whether their strategy will succeed when they are already growing revenue at 60%?

Darth: It being Christmas Eve and all I don’t have too much time to get into it now. But Elastic has longevity in their growth. High 50’s low 60’s is going to be the range.

When you get some time I’d love to know what leads you to say that. I hope you’re right!

Darth: $6B market cap seems ridiculously low for their potential. Which is a huge potential.

This gets back to my original point, which I probably made poorly. Maybe I can do better by analogy.

I go to a pizza place to get a pizza, or a bakery to get a cake. That doesn’t mean I want to buy an oven that can make anything. Is Elastic the oven? Datadog the pizza? Crowdstrike the cake?

In other words, is it better to build something with endless potential? Or something that does a very specific thing well?

Bear

[captainccs]

Well Alteryx and Crowdstrike shares were hit as hard as Elastic as well, or harder. So why invest in Elastic with growing losses and promises of more, when you can invest in Alteryx or Crowdstrike (or Datadog) that are all hitting it out of the ballpark, and not trying to see how much money they can lose the way Elastic seems to be? That seems to me to be a valid question. It’s not like you are missing a bargain because Elastic is down. Crowd and Alteryx are down too, a lot, and have much, much better prospects for the next six months or a year, which is as far as we can really see with any kind of confidence.

It’s too much to expect that every stock discussed on Saul’s board is going to be a long time winner. Many have apparently good stories but something is holding them back. Most of us confess to not understanding the technologies. Even if we do, understanding the competitive landscape just adds to the complexity. Even a winner takes most like MDB is not necessarily the best performer “now.” Add to that Mr. Market’s moods and it gets really difficult if you are not in a bull market because only in bull markets are we all experts. I think the doubts expressed in this thread back up my contention.

At the risk of being OT I’m going to propose looking at charts. Not like chartists do with dozens of indicators but more like people looking at landscapes. In effect there are only three scenarios of interest, going up, down, or sideways. Forget gaps, support, resistance, etc. just look at the pretty pictures. BTW, traders usually prefer three and six month charts and I find them to be the most useful timeframes to detect Mr. Market’s moods but on occasion you want to look at different timeframes.

Before giving some examples, at another board we had long discussions about which was better, accumulating on the way down or waiting for the bottom and buying on positive momentum. Initially I was in favor of buying on the way down but I changed my mind, it’s safer to buy on the way up and looking at charts helps you make that decision.

Here are six charts that I don’t like the looks of:

CRWD: https://softwaretimes.com/pics/crwd-12-24-2019.gif - can’t seem to get steam up

DDOG: https://softwaretimes.com/pics/ddog-12-24-2019.gif - in a trading range

ESTC: https://softwaretimes.com/pics/estc-12-24-2019.gif - down, down, down

MDB: https://softwaretimes.com/pics/mdb-12-24-2019.gif - after a nice run, in a trading range for 10 months

ZM: https://softwaretimes.com/pics/zm-12-24-2019.gif - down, down, down

ZS: https://softwaretimes.com/pics/zs-12-24-2019.gif - big gap down and indecision

Three charts that I do like

AYX: https://softwaretimes.com/pics/ayx-12-24-2019.gif - nice run up, corrections, and start of a new run

TLRA: https://softwaretimes.com/pics/tlra-12-24-2019.gif - it’s a turnaround so ignore the first half. Nice momentum

TTD: https://softwaretimes.com/pics/ttd-12-24-2019.gif - nice run up, corrections, and new run up

These charts are not the start of your research but after you have talked it all out, see if the chart agrees with you. Remember that in a bull run we are all geniuses which is the reason to buy on the way up.

I hope this was not too OT. Please, no chartist gobbledygook. Just look at the pretty pictures to see if they confirm or deny your conclusions.

Merry Xmas and a very Prosperous 2020!

Denny Schlesinger

[LuckyDog2002]

Denny, i clicked on a few of hese and the only thing that came up was a red stop sign that said stop stealing bandwidth.

[SaulR80683]

Just look at the pretty pictures

Hi Denny, I guess I pay more attention to what the company is doing than to what the pretty pictures are doing.

Merry Xmas to you as well!

Saul

[captainccs]

Denny, i clicked on a few of hese and the only thing that came up was a red stop sign that said stop stealing bandwidth.

That means you have a firewall or something that is redirecting the link. The feature has a whitelist of sites authorized to display the images. If the redirect does not include TMF as the referrer then you get the “stop stealing bandwidth” message.

Denny Schlesinger

[captainccs]

Hi Denny, I guess I pay more attention to what the company is doing than to what the pretty pictures are doing.

The pretty pictures are for confirmation, not for primary decision making. Louis Navellier has a quarterly review that he calls “What is working on Wall Street Now?” The idea is to not go against City Hall or Mr. Market.

Denny Schlesinger

[PoorBloke]

I don’t post here often because I’m a marketing guy and not a numbers expert, so basically leech off the numbers guys’ analysis and then judge the company by what I see them doing in the marketing area.
What I see with ESTC is a company who has no marketing strategy at all. None. Zero. Nada.
They have a great product which anyone can take advantage of (See DDOG) but have nothing that I can personally identify as a focussed offering which will make them profitable in the short or medium term.
They seem to me to be a jack of all trades and master of none, which doesn’t fill me with confidence in their future, so although I did buy the stock and held it for around six months then I didn’t get anything from their earnings calls other than the CEO was super-excited about everything that they were doing.
Earnings calls are no indicator of success when contrasted with the stock price. So I sold.
DDOG’s earnings calls are far more focussed, and although I’d take their claims with a pinch of salt then the growth numbers back up their optimism.
But the most important lesson that I’ve learned over my lifetime of investing, starting from before the internet bubble, is that setting a goal and then being able to achieve it is paramount to investing success.
My goal used to be to beat the S&P by 20%, which I did some years but not others because I was over-diversified to the extent that even my massive winners couldn’t put me far ahead of the S&P because they were such a small part of my portfolio.
Then I discovered this board and reduced my portfolio down to fifteen stocks rather than 60+ and calendar year 2017-18 was up by 50% which was amazing.
2018-2019 up by 70% which was gobsmacking.
And then this year I just decided that 70% was enough. If I reached that goal then I was going to sell, which I did.
Now, maybe you want to know why, so I’ll explain:
I worked for Intel for 18 years and during the Internet boom then suddenly I had enough stock to retire on at 40 years old.
I’d calculated how much money I’d have to have to never work again and when I hit that goal then that was it. Retirement. Although my colleagues said that if I held on then I could buy an island or five yachts then that never interested me because I had set a goal and achieved it, so whatever happened afterwards then I’d be happy.
So when I hit 70% gains this calendar year I sold out of everything again.
This may not make much sense to you, but I set that goal now and when I reach it then I sell everything. As I will do next calendar year.
I don’t care about potential missed gains or losses because I can relax and stop even thinking about the machinations and foibles of the market. I’ve achieved my goal.
As for tax, which I know some people worry about, then I donate enough enough to charities to effectively reduce my tax to zero which I’m glad that I’m able to do because there are many people on this earth who deserve support but whose governments want to punish them, which I think is unfair.
So merry Christmas or whatever you celebrate at this time of year to you all, and thanks to every single one of you.
Cheers, PB.

[FadeMe]

I hope this was not too OT. Please, no chartist gobbledygook.

Well if you look at the title of the thread it’s way OT. We can all look up a chart. Thankfully Saul has rules and this lurker is thankful for that.

[Torquepeak]

I believe the key to understanding ESTC is to follow the go to market strategy, which is developer lead, that they have outlined and executed. Right off the bat, there is a reason to like ESTC; communication and execution. They said they would apply the developer lead model to all the verticals they participate in and they have done it twice. Once with monitoring and again with security.

The developer lead model has some advantages that have been discussed and it shows in the performance when looking at the expansion rate of 130%. We have seen some companies chase marketing efficiency and rev growth by concentrating on the expansion rate at the expense of new customer lands. The two examples are NTNX and ZS. So, as we see the losses continue to mount, this is expected from both high R&D and S&M spend. Without a good reason, the overall strategy of ESTC should be to remain to grab as much new customers and market share as possible and let the expansion follow it’s natural course following the dev-lead model. Why? because Elastic gets built into products by developers as well as being used by developers. This is not the same as ZS, for example, where the S&M spend for new customers goes to the C-suite. ESTC has the potential to become integrated deeper into organizational operations.

Elastics second differentiating feature related to the go to market strategy is the pricing model, which I feel is massively under-estimated. As Elastic gets built into products they charge on usage. I have not found a clean analogy to communicate this, but it’s akin to electricity. ESTC puts a meter on the stack and charges you for usage regardless of where or why. The monitoring and security is like appliances that ESTC sells, in this analogy like a stove or dryer that uses electricity and you get it for free when installing the meter.

Why is this a big deal? As these applications and products that have ESTC stack woven into them grow and as the organizations using the Elastic stack grow endpoints, etc. They are still charged on the usage. From a management and operations standpoint this is a very big deal since managers have more direct control over usage through whatever techniques they can pull the levers on usage and have control over costs. This more direct relationship of cost driver to cost is what I feel everyone is missing. It’s a key component of the company strategy. It allows variable pricing for customers of their application/product. You can understand the demand for this by looking at the demand for cloud services. Managers/Companies prefer variable pricing to fixed. Expense over Capital. These operations and usage decisions are going to be mostly developer lead but the direct pricing model will be preferred by the entire organization when looking at controlling costs and margins by ESTC customers.

[CMF_muji]

For those that aren’t aware, I am “CMF” for the Fool, which designates a “Community Member Fool”. Any user with that prefix is a member of the Fool community (not an employee) that is dedicated to certain forum tasks; for me, it’s being a Ticker Guide, covering events for a couple of companies on the Premium boards. As such, Fool requires that CMFers, as well as TMFers (Fool employees), have a quiet period on the forums before & after trades. Due to this, I couldn’t contribute to this DDOG vs ESTC discussion that took place in December.

First off, PoorBloke’s point on the difference of FOCUS of the two companies really resonated. ESTC is moving in a lot of different directions, which is good and bad.

Here is my take (numbers shown are DDOG vs ESTC):

They have similar rev levels in the latest quarter (96M vs 101M) but DDOG will overtake ESTC immediately given its 25% higher growth (88% vs 63%). While their Opex growth rates are similar (76% vs 72%), ESTC had to scale it higher earlier (76M vs 124M), which leaves DDOG bumping profitability already.

Both are very popular platforms having a lot of success in observability space, however given the rev growth differential, in a head-to-head comparison of the two companies, it seems enterprises are prefering the higher priced BUT SIMPLER DDOG platform over the cheaper but more difficult to setup/maintain ESTC platform.

Even if you use a managed cloud service, Elastic Stack still requires IT staff to manage that cluster. (And worse, a self-managed cluster requires wayyyy more IT resources.) In comparison, DDOG is a complete hosted SaaS service where the customer simply installs an agent and DDOG does everything else. I think the head-to-head numbers above bear out the conclusion that most enterprises prefer having to do as little as possible to implement a solution, and will pay up accordingly. ESTC clearly has a place, and as companies scale up they will certainly hit an inflection point where taking over the monitoring platform themselves (by doing it DIY with Elastic Stack) will win out on cost over a per-system price of a managed service like DDOG. But for now, the top and bottom lines are showing DDOG is winning this head-to-head battle in the near-term.

PS I think this conclusion is relevant to CRWD vs ESTC as well, with the extra bonus for CRWD in that their customers gain the benefit of crowdsourced security across all CRWD customers, while ESTC keeps an enterprise as its own island of data. That doesn’t apply to the DDOG vs ESTC comparison in monitoring, where the benefits are solely cost vs convenience, … where convenience is winning.

End result - I have bolstered my DDOG from 8% to 10%, and CRWD significantly from 1% to 10% after its large drop. I have sold all ESTC at year end to harvest tax loss, with the possibility of getting back in at some point after wash rule expires (especially if they show signs of improving bottom line by drastically lowering the opex growth).

• muji
  long DDOG 10%, CRWD 10%

[TMFDatabasebob]

CMF_muji said: “For those that aren’t aware, I am “CMF” for the Fool, which designates a “Community Member Fool”. Any user with that prefix is a member of the Fool community (not an employee) that is dedicated to certain forum tasks; for me, it’s being a Ticker Guide, covering events for a couple of companies on the Premium boards. As such, Fool requires that CMFers, as well as TMFers (Fool employees), have a quiet period on the forums before & after trades.”

I realize that this is a bit off-topic, but I hope you’ll let me slide. Not everyone with a TMF prefix is an employee. It wouldn’t surprise me if only half of TMF prefix dudes and dudettes out there are employees. I am a Community Member Fool, like CMF_muji. I am a Coverage Fool, not a Ticker Guide (that distinction may not make sense unless you’re a subscriber). I know of non-employees who write for TMF and/or have an advisory role at certain services that have a TMF prefix. I know of other TMF-monikered, non-employee, long-time community members who support TMF by patrolling the subscriber message boards keeping conversion lively and civil. Were they to take on that role today, they might get a CMF designation, but they were granted a TMF name before CMF was a “thing”. So please don’t assume we’re all employees – we’re not.

CMF_muji is absolutely right that we all (CMFers and TMFers) have to abide by rules that if we post about a company, we can’t trade it for a few days and, conversely, if we trade a stock, we can’t post about the company for a few days. TMFers who are employees or who have advisory roles with certain services are subject to even stricter restrictions. I don’t know all of those details since I personally am not subject to them.

Since we’re on the TMF boards here, and I saw a statement about TMFers that is not factually accurate, I wanted to correct it. Please do not interpret this as anything negative about CMF_muji’s company analysis. I think he does a great job and I’m a big fan. His work is Coverage Fool caliber, in my opinion, but they’re not being minted anymore, best as I can tell…

I hope this helps clarify.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: CRWD, DDOG, ESTC, and now I can’t trade them for a couple of days)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

Please note: I am not a member of any newsletter team. My opinions are my own and do not necessarily reflect those of the TMF advisers. I am not an investment professional, merely an investor.