My take: DDOG's results and conf call

My Take on Datadogs earnings and conf call. This is from my notes so it won’t exactly mirror the placement in the press release and transcript.

Revenue grew 68% to $140 million

Customers with over $100,000 of ARR, were 1,015, up from 594 a year ago, up 71%, and growing strongly. They generate 75% of our revenue

Total Customers are 12,100, up 37% from 8,800 a year ago. Gross new customers additions matched to the record set in Q1

Achieved FedRAMP approval

Acquired Undefined Labs to provide visibility early in the development cycle

Our growth at scale amid the global pandemic shows our importance in enabling the digital operations of our customers. While the current macro environment has caused business pressures for our customers, we expect it to accelerate digital transformation and cloud migration over the long-term. We are very well positioned to be a primary beneficiary of these trends. We continue to execute on our strategic priorities to position for the long-term, including rapid product innovation and expansion of our go-to-market.

Revenue was $140 million, up 68%.
Adj Gross margins were 80% of revenue, up from 75%
Adj operating income was $15 million, up from a LOSS of $5 million
Adj operating margin was 11%, up from a LOSS of 7%
Operating cash flow was $25 million
Adj net income was $17.5 million up from a LOSS of $4 million
Adj EPS was 5 cents, up from a LOSS.
Free cash flow was $19 million.
Dollar-based net retention rate was over 130%
Cash was $1.5 billion.

Business Highlights:

Datadog is now fully available in the FedRAMP marketplace.

Acquired Undefined Labs, a provider of observability for dev and test workflows. This acquisition enables Datadog to be injected earlier in the software lifecycle, starting even before code is committed to a central repository. This will equip customers to track continuous integration and deployment (CI/CD) workflows, and enable them to identify issues before reaching production.

• General availability of Private Locations for Synthetic Monitoring. Expanding beyond public-facing websites and endpoints, this capability enables dev and ops teams to proactively monitor internal applications that are not accessible from the public internet.

Continued product innovations, including the general availability of the Datadog mobile app to provide access to dashboards, alerts, and integrations with on-call notification systems on the go; support for Amazon Kinesis Data Firehose to enable streaming logs directly from AWS services to Datadog; the preview release of the Datadog IoT agent to provide visibility into Internet of Things devices;

New integrations include Amazon Elastic File System for AWS Lambda, Apache Ignite, Hazelcast, and HiveMQ and AWS 1-click integration to automate configuration with AWS services like EC2 and Lambda.

• Issued $748 million of 0.125% Convertible Senior Notes due 2025.

• Revenue of $145 million. (50% growth)
• Adj operating income of $1 million.
• Adj net income per share of 1 cent.

Conference Call

In the quarter, we had a few small yet notable new logo wins from two global auto chains, an amusement park chain, a large US university and a European airline.

68% of customers are using two or more products, up from 40% a year ago, 75% of new logos landed with two or more products and over 15% of our customers are now using four or more products, while we had zero last year.

We are winning in the market, because we are cloud native, our support of cloud and other ephemeral architectures is more important than ever as a rapid change from work from home has demonstrated the limitation of legacy infrastructure. And we believe recent events will accelerate the migration to the cloud as the economy improves. We win because we offer the broader solution with end-to-end visibility from backend infrastructure, all the way through to the end user experience and now security as well. And we win because we offer a truly integrated platform.

While execution was strong, the macro environment did have some impact on our top line results, and in particular on growth of existing customers. Our customers continue to grow usage of our platform, but the rate of this growth was below what we saw before the pandemic. This was primarily seen in our larger customers, who already had a sizable cloud environment. Given macro uncertainty, we saw these larger customers look to conserve cash where they still could and therefore, optimize the consumption of cloud infrastructure. We see large enterprises go through these optimization exercises on a regular basis. What was unusual this quarter was to see a large number of companies going through it at the same time.

And by the way, in general what we mean by that is not that they call Datadog to cut their bill. It’s that they’re trying to figure out what they could shutdown or optimize on the Amazon side, or on the Google side, on the Azure side. So they use less Amazon instances or containers, or less Azure instances and containers.

And so we see some decrease of their data volume, or infrastructure side viewing over a period of a few weeks, but then what we see after that is that they start going again, because then their team keeps building, and they keep deploying, and keep having customers etc, etc. So it’s not an exercise that is new or unexpected. I think what’s different now is that it made sense for all of these companies to do it at the same time and it just happened.

We had a record level of new logos, both in terms of numbers and in terms of revenue. We had a record level of new product attaches. A great part of this is driven by the rate of migration to the cloud and the rate at which customers are scaling to the cloud. Again, we’re very early in that transition and customers are going to keep transitioning for much longer time, and they keep scaling and we see that they only want to do that more now that they see the impact of COVID on their business, and they feel the need to transform. But on a quarter-to-quarter basis in the near-term, we don’t exactly know where that’s going.

What is important to understand is that the signs of active demand are really strong, whether it’s new logo, or new products. That rate is actually up from what they’ve been before, and this keeps growing over time. So all that is great. The one thing that’s been a detractor this quarter has been I would say the passive consumption [of data]. Which didn’t growing quite as fast as it was.

On the flip side, smaller customers and large enterprises that are earlier in their cloud journey continue to see stronger growth.

Lastly, in July we saw a NOTABLE IMPROVEMENT in usage growth compared to Q2, driven by broad-based strength across our customer base. Things had started recovering in June, so growth was going up in June, and is recovering further in July. So these are the trends we’ve seen. So last quarter was a lot noisier than what we are used to, which is having very consistent numbers month over month.

It is too soon to know if this growth will be sustained given the macro environment. As a result, and while we are encouraged by these trends, we remain prudently conservative in our outlook for the remainder of the year.

As a reminder, we have both a subscription and usage based revenue model and the growth of our revenue is relative to the growth of our customer’s cloud footprint and data volume.

Finally, I’m very proud of the performance of our go-to-market teams during the challenging times, as we are executing well against what we can control and our teams are delivering record levels of new logos and product cross-sell. Next on to R&D, we continue to make significant investments to rapidly deliver innovation. We have a proven track record of success introducing new products and we see many new opportunities to expand our portfolio.

We thought it was possible some customers would seek to renegotiate terms or slow payments but that did not happen in a material way, pointing to the importance of our solution. Remaining performance obligations or RPO was $287 million, up 53% year-over-year. We did not see a material change in billings durations in Q2.

We had very stable gross churn. All of the metrics are in the 90s with enterprise tending to be towards the upper part of that range and SMB towards the lower, but all of them strong and in the 90s. We really didn’t see very much disruption.

On the Undefined acquisition:
Undefined focusses completely on what happens when developers check their own codes first on their own machine, and then until it ends up being deployed in production. So it’s not an area where we’ve been present before it, we haven’t been typically used by developers on coding on their machine before they commit towards production. So that’s new for us.

To be closer to the developer brings us closer to the clients in many ways and also allows us to really get extremely high value information for what happens from the time the code is committed to all the way through the release of production. So we are super excited about it, because Undefined built a great product in a short amount of time and we are very excited about building a common product together. Right now, we’re planning to sunset their old product and to rebuild it to be maximally integrated into our product, and the team is working hard at that right now.

Back to where we are today, we’re super confident about where we are, what the product is doing in the market, core customers are adopting it, developing the various parts of it and are growing with it. The one thing we are a little bit more careful about is what’s going to happen over the next few months or the next few quarters, which hopefully will get us through the rest of the pandemic.

My Take: This company is doing so well that it thinks of 68% growth as a significant slowdown. Their trends moved up in June after a nadir in May, and moved up further in July (which is the first month of the new quarter), so they are very encouraged BUT are giving low conservative guidance (of 50% growth) to be careful, but will probably come in at over 68% this time, as I figure it.

I don’t see how anyone who read the above results and conference call could have sold today! If you don’t understand what I am saying, just go back and reread my summary again. My guess is that anyone selling at $75 today is a robot, or a trader, or a person who didn’t bother to read the earnings report and conference call transcript. I added considerably today to my position and I have no worries about it.



This company is doing so well that it thinks of 68% growth as a significant slowdown.


I agree entirely that DDOG is performing well. I did not add today but did hold my entire 7% position. Curious as to what you sold to fund your considerable DDOG add today.


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Thank you so much for the update on ddog quarter
Sorry but I’m curious too
No mention of okta
Also did you trim fsly?

I agree with almost every word Saul wrote, and think DDOG’s quarter was amazing. But DDOG is still not a “buy” for me. Even after the sell-off, and the 140m they made in the quarter, the trailing PS ratio stands at 52.

Both FSLY and DDOG turned in good to very good reports, but the market expected blowouts. I truly believe the market thought they would do what Shopify did and that revenue would grow faster than it had in the past…close to 100% YoY. And that this would be the new normal. FSLY and DDOG had exceptional quarters, all things considered. But the market expected more.

Expectations drive stock prices. I think when we have skeptics come to the board and question investing in hypergrowth companies at almost any price, this is their point, and it’s actually a good one. Stocks move higher or lower not just because of company numbers reported. Stocks move higher or lower based on company numbers reported relative to the market’s expectations.

Yet investing in hypergrowth companies still works. It has worked at valuations that would surprise you. But I don’t know if we have ever seen it work at a PS ratio of 50+. I do still consider FSLY a buy (so I haven’t sold any of my large position since they reported), but FSLY’s PS ratio is 32. CRWD’s is 39. NET’s is 34. Do I have a cutoff where a PS ratio is good or bad? No. Do I know what it “should” be? No. It’s simply that I don’t see why DDOG’s should be 50%+ higher than all these other companies that are just as impressive to me.

I put the question to DDOG holders: why is it so much better (and more valuable) than these others? I agree that DDOG can probably grow around 70%, but I think CRWD will grow faster. If it’s not simply about growth rate, I think FSLY and NET are right place, right time businesses with huge opportunities. Just look at all the wide-ranging products NET has, and how excited they are about their platform (as they see it). NET seems like a company that constantly comes up with all kinds of different ways to serve their customers, which I love. I have taken a 4% position, and I plan to add more. NET and FSLY both have smaller market caps, so potentially more room to grow, and seem like they’re just getting started.

Anyway, maybe it’s silly to compare all these great companies qualitatively. They’re all fantastic! But DDOG is the most expensive…buy a lot! Why pay up for DDOG instead of just allocating more into the others?

I see great company results for all, but I think the others could maybe expand their multiple (a little) while DDOG’s is more likely to contract a little. In other words, I think the market’s expectations for DDOG are a little too high and the expectations for the others are a little too low. Doesn’t it make sense to have a higher allocation in the undervalued rather than the overvalued?

That said, I reiterate: DDOG holders – please explain why it’s so much more valuable than these other also-great companies! Maybe I’ll grab a small position…I’ve got way too much uninvested cash right now. But so far the opportunist in me is winning the conversation, saying, “Maybe DDOG will fall a little further, so the PS is more in line with these others, and I could buy it then.”




you raise great point…

I am thinking aloud here… this is what it looks like to me… happy to change if I am missing something

DDOG: Best among all criteria IMO outlined here

  • Land: Best - All cloud users as target… Easiest land (need to monitor some process, start at low price… not much red tape)…
  • Expand: Best - rapid and long runway for expand… start using for everything in the cloud… grows with usage
  • Gross margin: Among the Best - Upper echelon (75%+)
  • Multi-product: Best - bundling is successful…


  • Land: Niche target - Easy for programmer, high end of the performance
    trying to make it easy for developers…
  • Expand: Best - rapid and long runway for expand… once hooked on performance, customer keeps finding refuge in this…
  • Gross margin: So so - need to keep spending capex
  • Multi-product: TBD


  • Land: Better than FSLY - All edge user / CDN / security as target… still a subset of cloud users… easier land than FSLY… or any other on this list except DDOG…
  • Expand: Toughest among this list… With historical focus small / SMB, expand is not easy… though it is built-in
  • Gross margin: Better than FSLY but only because it classifies free users as sales & marketing spend… it does need to keep spending capex
  • Multi-product: Successful… but not as much as DDOG


  • Land: As easy as NET or FSLY… better ZS on this list but it still requires a conscious corporate decision… it has tailwind with pandemic and Symantec… but it is not as simple as DDOG where one programmer can start something <$100 / month…
  • Expand: Best… large number built-in… but still upper limit with number of end devices… so not un-limited (at-least in theory) as with others on this list
  • Gross margin: Among the best
  • Multi-product: Successful… but not as much as DDOG just yet…


  • Land: probably the most difficult compared to rest on this list
  • Expand: among the best… with pandemic tailwind
  • Gross margin: Among the best
  • Multi-product: Successful… but just two products and very slow with new products…

We could add TWLO, SMAR, ESTC and few others on this… (I probably will)… but it looks to me that there is a huge built-in leverage with DDOG that the rest doesnt have… ZM may come closure but it is only because pandemic removed huge decision making barrier and enabled Land to be much easier… going forward, not so clear…

Welcome others comments


Im not in this world of developers but it seems to me that datadog is a sticky product product / service similar to the likes of Shopify and zoom.
Fastly and net are
Believed to be be great as cdns and we are hoping they can innovate to stay great through “edge computing”

Beth kindig says ddog is in cloud migration which she believes is the strongest trend in tech.

I remember awhile ago we sold Shopify at about $150 because of valuation concerns and concerns of slowing growth. Now Shopify is over 1,000 a share and just posted a quarter with 97% y/y growth!
I think datadog can follow a similar trajectory for patient investors.

From what I can tell it’s need and moat rank up there with zoom

Above crwd fsly net?

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I’m not a techie so can’t offer technical advantages that DDOG might have. But I’ve learned to see a sustained high valuation as a perceived certainty by the market of a company’s dominance. There are other factors that go into a high multiple, such as revenue growth rate, but this is one of them. A market leader will have a high valuation as if it’s a foregone conclusion they will succeed over time. That concept is obvious and nothing new to anyone here.

In other words, invert the idea of reversion to the mean, and instead look for the progression to the extreme. An extreme valuation is a sign the market believes the company will succeed for a long time. That’s also nothing new to anyone here.

I recently read Gorilla Game (author of Crossing the Chasm) thanks to Captain Denny’s advice and in that book is a nice visualization that helped me. The authors use an XY graph to represent the market cap of companies.

On the graph, the Y-vertical is RETURNS, the X-horizontal is TIME.

RETURNS   |          

“Gorillas” are market-leaders in any industry: Google, Amazon, Facebook, Zoom? etc. And “chimps” are basically also-rans who fall into a niche or just try to keep up.

So we can transpose the market cap of Gorillas and Chimps onto this graph.

The vertical height represents the depth of the competitive advantage a company has relative to it’s market competition. This is the Competitive Advantage Gap . For a Gorilla, the depth of their advantage, their GAP, means they are going to take a disproportionate amount of returns.

The horizontal width line represents the sustainability over time. This is the Competitive Advantage Period or CAP. ( CAP is also nothing new to anyone here). For a Gorilla, the sustainability of their advantage, their CAP, means they are going to take a disproportionate amount of the returns for a long time.

So for a Gorilla, you end up with a company that is going to take a disproportionate amount of the returns for a disproportionate amount of time … until the technology in the industry is fundamentally disrupted (discontinuous technologies). They do this through the law of increasing returns.

So a Gorilla’s market cap vs a chimp’s market cap looks like this:

 aka      | 
 GAP =    |
 "depth"  |
 of       |---------          
 advantage|         |
          |         |
          | NORMAL  |
          |         |
            aka CAP = "sustainability" of competitive advantage


 RETURNS  |                     | 
          |                     |  
 aka      |                     | 
          |                     | 
 GAP =    |    GORILLA          |
 "depth"  |                     | 
 of       |                     | 
 advantage|                     | 
          |                     | 
            aka CAP = "sustainability" of competitive advantage

The move to the cloud is a discontinuous technology. We had data monitoring before but it was built for on-prem. DDOG is built for the cloud and this gives them an advantage in the Cloud Monitoring space. Therefore, because DDOG has a very high multiple it must represent that the market believes that it’s a foregone conclusion they will be the market leader in monitoring built for the cloud.

You can see this too in Okta vs Ping:…

If you scroll all the way to the bottom under the headline “Ping Identity (PING)” (or just copy that heading in quotes and control-F or command-F for a shortcut) you can see the metrics that Peter lists between the companies. This A-B comparison hit home for me. The A-B metrics include revenue, growth rate, etc but the last metric shows Okta with an EV/S of 31.7 vs Ping’s 8.5. What this says to me is that everyone knows that everyone knows that Okta is the leader and Ping will never catch them. Okta will take the disproportionate amount of the returns. Ping is “under-valued” and for a good reason (that’s what the market is saying, not me).

Again, I don’t know technically why the market believes DDOG will win, and maybe they won’t and maybe their multiple will revert to the mean soon, but I at least have a framework for understanding it in some way. I’m not sure if this is helpful but that’s how I’m learning to see it, and cope with high multiples (again everyone knows that everyone knows that SAAS multiples are stretched). Unfortunately, we were never able to get much multiple expansion from DDOG as they IPO’ed at an extreme … but they could continue to grow at a hyper-growth rate for many quarters or years to come, and if they are the market leader, their multiple will stay at the extreme end.

(Long DDOG at ~ 14%, and bought a bit more yesterday)


But I’ve learned to see a sustained high valuation as a perceived certainty, by the market, of a company’s dominance. There are other factors that go into a high multiple, such as revenue growth rate, but this is one of them. A market leader will have a high valuation as if it’s a foregone conclusion they will succeed over time. That concept is obvious and nothing new to anyone here.

What an elegant way to put it. Thanks so much gmcnatt!