DDOG earnings are scheduled for the 10th of November. Although it is a long term holding for me, I am nevertheless trying to figure out what they will be, and how the market will react.
Last earnings reported a 140 million revenue, up 68% YoY. The sequential increase was 8.75 million or 6.67%. The two previous sequential increases were 17.78 million (from roughly 96 to 113 million, or 18.55%) and 17.61 million (from roughly 114 to 131 million, or 15.5%). So the last sequential increase was half of the two preceding increases (in dollar terms).
If the next sequential increase remains the same, the revenue will clock in at about 149 million, a 55.44% YoY increase. If the next sequential increase reverts to 18 million, the revenue will clock in at about 158 million, a 64.82% YoY increase.
In order to return to 80%+ YoY growth rates, the revenue should clock in at 172.55 million, a 32.55 million sequential increase, a little less than twice the usual sequential increase! The fact is, once a revenue growth is missed (according to historical norm), it looks hard to catch up…
I think the market (and me) is expecting a beat of the management forecasted 143-145 million range (which would represent a 50% YoY growth at the midpoint). While a beat is reasonable to expect, I don’t think it will be huge. As per the CFO words:
“As Olivier noted, however, in July, we experienced an improvement in usage trends relative to Q2 that were closer to our pre-pandemic historical levels. However, it is too soon to know if this will prove to be sustainable. And given the lack of clarity of economic trends, we are assuming usage growth of existing customers below pre-COVID growth rates. Additionally, while we have not yet seen a material impact to our new sales, we think it is prudent to expect some impact in the second half given the macro backdrop.”
In this passage, July usage levels were “closer” to pre-pandemic levels. I understand that as being below.
Maybe this interpretation is why the stock is up “only” 145% YTD, compared to other stocks which truly benefit from the pandemic. Granted this performance and the earnings growth is still extraordinary, probably in part due to the string of good news about the company.
I am inclined to trim before earnings, as it is quite a large position for me (25%), and as I expect the beat to be modest. I however will maintain a good-sized position, because I believe in the company and because the growth is still one of the best out there.
If you have a different opinion, please weigh in.