While This is not my first post, I’ll make quick introduction. I have been an avid [silent] follower of the board for two full years now, reading and learning, and since I have started my gains are currently today at +29.5% YTD, and +206.2% (which is down from +392% at the end of Oct), since I began.
I have been using this time in the market to really put my focus on WHY I own these companies, and I noticed a marked transition in going from being fearful in the massacre to being excited for the companies and excited for the ability to buy at lower levels. I don’t know how long it will last or how deep it will go, but for the first time in my investing life I can say, fear is not the motivator. This wisdom of the board is allowing me to mature as an investor, and for that THANK YOU TO ALL! enough about me… I am obviously still learning so take my thoughts with a grain of salt.
DDOG Q3 Notes / thoughts / Opinions
Conference Call Highlights
•Revenue was $270 million, an increase of 75% year-over-year
and above the high end of our guidance range. We ended
the quarter with 1,800 customers with ARR of $100,000 or more,
up from 1,082 in the year-ago quarter. These customers
generated about 80% of our ARR.
•FCF Margin of 21% at $57M
•Billings up 98% to $309M
•RPO up 127% $719M driven by strong sales activity, increased
contract duration, and it was growing against an easier
compare in the third quarter of last year
•The leverage and efficiency of our business model is coming
through, with free cash flow of $57 million and our
dollar-based net retention rate continued to be of over 130%
[17th consecutive quarter].
•31% of customers are now using four or more products, which is
up from 20% last year. And this quarter, about 70% of
new logos landed with two or more product.
•All of our major products added a record amount of ARR
during the quarter, but also that the year-over-year growth of
Infrastructure Monitoring ARR on its own accelerated this
quarter
•40 new products in Q3
•Vector and Observability Pipelines let customers make
value-based decisions on data as early as possible before
they send data to Datadog or any other partner. We are always
looking for ways to give customers more control of how they
use their data and how they manage the cost of their cloud
deployments
•we acquired Ozcode, a live debugging solution for .NET
applications, which lets developers solve problem in real
time, whether in development or in production environments.
It is another example of our growing push into developer
workflows.
•First, we had our largest deal ever by total contract value
and over $60 million five-year upsell
o This was followed by a 7 figure upsell, and two 6
figure upsells.
•One next step for us is in security with our Cloud Security
Platform, and we believe we have a part to play in breaking
down silos between development, operations, and security
teams. But we’re also making our first inroads in pure
developer workflows with the general availability of CI
Visibility. And we think over time we have opportunities to
help our customers in several of the large adjacent markets as
well. In other words, we are just getting started.
•We continue to invest significantly in R&D, including high
growth in our engineering head count.
MY Summary
•Not that I need to say this, but DDOG is executing tremendously well, while it’s easy to give the praises of the overall quarter (and year) My one (possible) negative is the sequential customer adds need to pick up to offer hope of the growth rate to either continuing to grow or to plateau at a strong growth, but that said, that won’t be realized in the numbers until later.
o I surmise that this speaks to the strength of their
product releases, as that is probably what is leading
towards the reacceleration of revenue. That is exciting.
Because if they can reaccelerate revenue without having
to massively add customers – talk about strength in
product.
o That negative is offset by strong ARR and continued high
DBNRR, and strong large customer adds, but I believe
that is coming from current customer base, which will
eventually cause the growth trend to reverse course. It
will happen at some point, I just hope it doesn’t happen
quickly or in the next 2 quarters.
o I could not find an exact number but in the call they
stated ARR exceeded $1B. 500M of that came from Log
management and APM suite, which includes Synthetics,
user monitoring and Continuous Profiler.
• TTM growth has increased every Quarter in 2021 both in Y/Y
and sequentially.
• Quarterly Growth has increased every Quarter in 2021, using
Q121 as the start point, from a Y/Y perspective respectively
51%, 66%, 75%
• Non-GAAP Operating income continued to show strength coming
in at $44.27 with a margin of 16.4%
Op Inc Op Marg
Q121 $32.20 16.2%
Q221 $30.90 13.2%
Q321 $44.27 16.4%
•Regarding Q421 Scenarios outlined below
o I believe Status Quo to be the low hanging fruit. It
would be somewhat disappointing beat given they seem to live
around the 9% range.
o I believe the Maintain Acceleration is a bit of
stretch, it would require Q4 to be the best quarter on
record across the board, and the sequential growth required
is a tall order coming in at 20.9% growth which would be
17.5% of the total revenue earned.
o I believe the Beat using prior quarters beats as an
expectation is a safe expectation. I would probably even say
that might be on the high end of “safe”
o What I really like about DDOG is the gap between what I
believe to be necessary and what is probably a safe
expectation is large, nearly 4% points. So, I have high
conviction on next earnings, pending new news, as the story
can change at any time.
• $270.49 for a 9.1% beat off a guide of $248. For Y/Y revenue
growth of 74.87%.
• TTM Revenue was up 63% at $880 was a sequential add of
$115.81 which was a 15.2% increase on the quarter
Sales(TTM) TTM% Seq TTM Seq TTM %
Q121 670.77 58% 67.3 11%
Q221 764.31 59% 93.54 14%
Q321 880.12 63% 115.808 15%
• Sequential Revenue add in 2021 has been 11.8%,17.6%, and
15.8%
o This means DDOG revenue sequential raw add has already
grown 52.3% on the year, compared to 36.2% in the first
three quarters of 2020. (I took $100 and comounded it at
the sequential growth for each respective quarter)
? At the guide for Q421 the revenue add would be 8%, which
would give DDOG a 2021 total of 64.5%, compared to 56.3%.
? 2020 sequential will be held down due to the covid pull
back. 2019 ended the first three quarters at 55.2% and
the year at 84.4%.
o The Raw sequential values have been increasing steadily for
three straight quarters with Q221 being the strong quarter.
(Second column of %’s is raw add as a % of revenue. Q3 was
slightly lower than Q2 from a percentage standpoint but I
believed this to be expected.
Raw Seq %seq Gr Seq% of Rev
Q121 21 12% 11%
Q221 35 18% 15%
Q321 36.9 16% 14%
Acceleration
• Ended Q221 with an overall TTM acceleration of -5.05%. This
improved in Q321 to -4.14%, that’s using Q419 as the starting
point
• Acceleration Rates from a trailing Quarter perspective showed
Q3 coming in 3.4% greater than Q2 which came in at 8.9% (I
would like to note that Q2 had a higher acceleration rate)
greater than Q1. Quarter 2, 2021 was the first indication on
a reacceleration of revenue growth, which was then confirmed
with Q3.
Q121 -8.14%
Q221 0.77%
Q321 4.13%
Customer Data
• Subscription Customers grew to 17,500 for 33.6% growth.
• Sequential was 1100 for 6.7%. Excluding the COVID quarter
DDOG customer add is consistent of being between either 1000
or 1100 with Q2 being the strong Quarter of 1200.
• Customers over 100k ARR grew to 1800 up over 60% Y/Y
Cust Cust G% Total Add Seq %
Q121 15200 32% 1000 7%
Q221 16400 36% 1200 8%
Q321 17500 34% 1100 7%
• Assuming customer adds remain around 1100 that would bring
customer growth down to 31% and 6.3% sequentially.
• DDOG successfully guided to what would be one of the worst
quarters, second to Q220. I do not have reason to believe
they will only report what they guide.
o What is interesting about this – even with it being a “bad
quarter guide” the TTM would still be accelerating the TTM
by approximately 1% Going from an overall -4.14% to a
-3.33%, but this is due to the nature of using a trailing
indicator with 2 strong quarters.
• To Maintain Status Quo of the rate seen in Q321,
meaning a zero slope, they would have to report a 5.1% beat
of $306.75. Sequentially that would be $36.3 added for 13.4%
growth. TTM numbers would be up to $1,009.3 for, $129.2
sequentially for 14.7% growth
Rev Rev % Beat Raw Seq % seq
Q121 198.55 51% 6.2% 21.02 12%
Q221 233.55 67% 9.6% 35 18%
Q321 270.488 75% 9.1% 36.938 16%
Q421 306.892 73% 5.1% 36.404 13%
Sale(TTM) TTM% Seq TTM Seq %
Q121 670.8 58% 67.3 11%
Q221 764.3 59% 93.5 14%
Q321 880.1 63% 115.8 15%
Q421 1009.5 67% 129.4 15%
• To Maintain Growth Acceleration seen in Q3, meaning
same slope, they would have to beat by 12% for $327.04 for
84% growth. $56.55 sequential for 20.9% growth TTM would be
$1,029.63 for 70.6% growth that’s 17% sequential growth.
Rev Rev % Beat Raw Seq % seq
Q121 198.6 51% 6.2% 21.0 12%
Q221 233.6 67% 9.6% 35.0 18%
Q321 270.5 75% 9.1% 36.9 16%
Q421 327.0 84% 12.0% 56.6 21%
Sale (TTM) TTM% Seq TTM Seq %
Q121 670.8 58% 67.3 11%
Q221 764.3 59% 93.5 14%
Q321 880.1 63% 115.8 15%
Q421 1029.6 71% 149.5 17%
• To Beat using prior quarters beats as an expectation
that would put them beating at around 9% for $318.28 in
Revenue for 79.3% growth of which $47.8 would be sequential
growth for 17.7%. TTM would be $140.75 for 69.2% growth
sequentially that would be 16%. This still keeps their growth
rate increasing by 1.9% to 6% (an increase from 4% last
quarter)
Rev Rev % Beat Raw Seq % seq
Q121 198.6 51% 6.2% 21.0 12%
Q221 233.6 67% 9.6% 35.0 18%
Q321 270.5 75% 9.1% 36.9 16%
Q421 318.3 79% 9.0% 47.8 18%
Sale(TTM) TTM% Seq TTM Seq %
Q121 670.8 58% 67.3 11%
Q221 764.3 59% 93.5 14%
Q321 880.1 63% 115.8 15%
Q421 1020.9 69% 140.8 16%
Post Q321 News Headlines
Not all these headlines are meaningful*
Positive / Negative Talley – 11 Positive / 1 Negative
Last 30 Days 75% Positive: 3 Positive / 1 Negative
1.(-) 12/14/21 JP Morgan downgraded the stock from Neutral to
Underweight and lowered its price target from $212 to $195.
“JPMorgan said that lowering its rating on the data analytics
and monitoring company is ‘purely a valuation call’." -
Benzinga
-
(+) 12/9/21 Datadog Launches Service to Protect Sensitive
Data and Assist with Compliance Requirements – DDOG IR
a. “When configured for a customer’s environment, this new
service provides customers with an easy solution to
detect, classify and protect sensitive data found in
their application logs, helping them comply with
regulatory requirements (such as GDPR, HIPAA, CCPA),
industry standards and business policies” -
(+) 11/30/21 Datadog Achieves AWS Graviton Ready
Designation. DDOG IR -
(+) 11/29/21 Datadog Achieves AWS Migration & Modernization
Competency Status DDOG IR -
(+) 11/19/21 RBC Capital Upgrades Datadog to Outperform,
Raises Price Target to $235 -Benzinga -
(+) 11/18/21 Datadog Announces Real-Time Monitoring for
Confluent Cloud. -DDOG IR
a. “Users running Confluent Cloud at any scale, from a
proof of concept to mission-critical applications, can
now use Datadog to monitor their Confluent Cloud
resources alongside the rest of their technology stack.” -
(+) 11/18/21 Motley Fool Names Stock As Best Buy Now –
Benzinga
8.(+) 11/12/21 Zacks Names Stock As New Pick – Benzinga
9.(+) 11/10/21 Named A New Long Pick By Investors Business
Daily – Benzinga
-
(+) 11/8/21 Needham On Datadog Price Target Hike: Positive
On ‘Broad-Based Demand Across Products & Regions’ & That
Co. ‘Continues To Fire On All Possible Cylinders’;
Believes Co. Is ‘Arguably The Strongest Fundamental Story
In All Of Enterprise Software’ -Benzinga -
(+) 11/8/21 Needham Maintains Buy on Datadog, Raises Price
Target to $236 -Benzinga -
(+) 11/4/21 DDOG Complete Acquisition of Ozcode –“The
addition of Ozcode will support Datadog’s customers to
accelerate software development and reduce the mean time it
takes to resolve issues” – DDOG IR