Hi Bear, here is what I am seeing for example in Datadog, that some on the board seem to be missing (I emphasize some, because I think saying “what everyone else is missing” is going a bit far, because I suspect there are still many less frequent posters and lurkers who are still very bullish in Datadog and other SaaS companies). Since you encouraged us to consider the bear case, let me just briefly start there, before getting into what I am seeing for DDOG. In its simplest form, the bear case for any of those SaaS companies is that their products lose relevance and/or are replaced by products of other companies. We could now have long discussions about the narrative for each of their offerings while bears would try to make the point that all these SaaS companies are continuing to drop revenue growth rates with no end in sight. Yes, revenue growth rates have come down from a couple years ago, but is there really no end in sight? Or are these companies “secretly” picking up the pace again without bears noticing? I’d argue for the latter scenario. In fact I’d even argue that they are picking up the pace in plain sight - that is, if one is willing to look beyond the enormous forward pull of revenues those companies enjoyed after COVID. So, if true, where is this “plain sight” in the numbers? We need not look further than at a somewhat forgotten metric, that has been part of our tracking sheets for a long long time, but is rarely mentioned these days: this metric is raw YoY increase in revenue. I am just giving the example of Datadog here, which tells the story in one graph, more beautifully than I could with a thousand words:
Here you can clearly see the revenue forward pull as a result of COVID (starting in Q2 of 2021 which was the first quarter lapping the QoQ low in Q2 of 2020) and more importantly, you can see on this plot how Datadog picked up the pace right after Q2 of 2023, growing YoY net new revenue even faster than before COVID. I encourage you to look at the same type of plot for Cloudflare and Snowflake which tell a very similar story; a story of significantly and durably growing net new revenues, which is exactly what we want to see as growth investors.
-Ben