Datadog (DDOG) delivered another impressive earnings report on November 4th. After a strong Q2, Datadog is showing no signs of slowing down as we finish out the year. They beat expectations for Q3 on the top and bottom line, further accelerating revenue growth from Q2 to a staggering 75% year/year increase. Further, they raised projections for Q4 and the full year, with the initial revenue target for the current quarter implying higher revenue growth than Q3. The stock surged 12% the day after earnings, bringing DDOG’s 2021 performance to nearly a double from its $98 price at the close of 2020. DDOG is well past the $150 target for 2021 that I set at the beginning of the year. It now occupies the second largest allocation in my personal portfolio.
Datadog released Q2 2021 results on August 5th. The report was exceptional, demonstrating a return to the high revenue growth trajectory investors became accustomed to before COVID. Datadog beat expectations for Q2 on the top and bottom line by a significant margin, and raised projections for Q3 and the remainder of the year. The stock surged 15% following the results, after generally flatlining for the past 12 months. DDOG is now up over 35% in 2021 and I project it will end the year even higher. With this performance, DDOG is now the largest position in my personal portfolio.
Datadog reported Q1 2021 results on May 6th. Overall performance was strong and the market rewarded the stock with a 8.3% boost the next day. Datadog is demonstrating a return to high revenue growth coming out of the one-time, COVID-impacted engagement dip in Q2 2020. This provides a favorable set up for the remainder of 2021, as the customer expansion flywheel keeps spinning and revenue growth re-accelerates. The stock has largely consolidated for almost a year, with the current price below the peak reached in June 2020. As with all growth stocks so far in 2021, valuation multiple compression is limiting price appreciation. Even taking this into account, my end of year price target is higher than current levels and I have increased my portfolio allocation to DDOG.
Datadog announced Q4 and full year 2020 results on February 11th. They handily surpassed expectations for Q4 revenue and earnings. Similarly, they set initial guidance for Q1 and FY 2021 revenue above analyst estimates. In spite of this, the stock dropped about 4% the next day. This is likely attributable to continued concern for deceleration of the annual revenue growth rate and initial FY 2021 revenue guidance.
In spite of this, I think the results were strong. If we dig a little more deeply into quarterly trends, sequential revenue growth has been increasing since the COVID-driven Q2 dip and reached almost 15% for Q4. This trajectory implies that annualized revenue growth could inflect to the 60% range or higher as 2021 progresses. Customer metrics, both in new additions and spend expansion, further support the recovery case. Additionally, Datadog’s product development funnel continued to produce new revenue streams, bolstered by organic product extensions and a couple of acquisitions. Datadog now has 10 monetized product offerings and customers continue to adopt the newer ones.
Following these results, I have accumulated a mid-sized position in DDOG in my personal account. I have been covering the company for almost a year, waiting for a favorable entry point as Covid paused revenue growth. While Datadog had been executing well, I wanted to see revenue growth normalize before starting a position. I believe that has happened. Looking forward, I think 2021 will see Datadog return to its normal cadence of predictably high revenue growth combined with improving operational leverage. Additionally, rapid product expansion is presenting new market segments to drive growth. In this post, I review the Q4 results, product development progress and what we can look for in 2021.
Datadog announced Q2 earnings on August 6th. The results topped expectations for both revenue and earnings. Additionally, they raised Q3 and full year revenue estimates, but not by as wide a margin as in past quarterly reports. The stock dropped by almost 20% the next day, after a nice run-up in advance. During the earnings call, the leadership team discussed a few adverse effects as large customers optimized their usage in reaction to the macro environment. On the flip side, customer adds and DBNER continued at a high rate, providing confidence that Datadog can sustain growth after the COVID-19 headwinds clear. In this post, I review Datadog’s Q2 earnings and dig into the many product updates that occurred over the last several months. I also revisit the competitive landscape and examine how Datadog’s extension into new categories further expands their addressable market. For more background on Datadog, readers can review my prior quarterly recaps and initial analysis.
Early in the evolution of cloud computing infrastructure, the cloud providers were rapidly expanding their offerings. For a while, it seemed they would leave no room for independent providers in a land grab to address every segment of software infrastructure. As the landscape has matured and enterprises increasingly implement a multi-cloud strategy, it has become clear that independent providers can not only co-exist, but thrive, in this environment. Examples are Datadog for observability, Twilio for communications, MongoDB for databases and Fastly for CDN.
This blog post examines the history of cloud service providers and the evolution of their offerings. As cloud vendors have defined broad categories of software services, they have left openings for nimble, focused independent software vendors to leverage the same cloud infrastructure to deliver substantially better product offerings in some segments. From this, we can draw observations about why they are succeeding and what they need to continue doing. Investors occasionally raise competitive concerns for independent software providers that cloud vendors will choose at some point to crush them. I posit that threat has passed in many categories. This post seeks to help investors understand what has changed and how to reason about the risks going forward for their favorite independent software company investments.
Datadog released their Q1 2020 earnings report on May 11. The company delivered their typical beat and raise, exhibiting no noticeable slowdown from COVID-19. The market rewarded the stock the next day with a 24% jump, on top of a 47% run-up previously in 2020. Unlike other software companies impacted by COVID-19, Datadog kept annual guidance and even raised revenue targets by 5% over their prior estimate. Analysts and management were upbeat on the earnings call – price targets were raised across the board. In this post, I will review Datadog’s earnings results and then examine the broader observability space, as several competitors announced earnings recently as well.
Over the last couple of months, I have noticed several prominent software companies announcing new platform offerings. This goes beyond a marketing tactic, as most are backing the move with substantial new capabilities and tooling to add “programmability”. These extensions are meant to appeal to solution builders, in addition to their existing product users. While the companies will still offer packaged products, they are opening up their underlying software services for outside developers to build their own custom applications. The rationalization is an expectation that this will drive incremental revenue from usage fees, as developers launch brand new businesses or internal teams at enterprises tackle adjacent use cases. Also, some leading SaaS companies haven’t rolled out full platform offerings, but might benefit from it. In this post, I will examine what makes for a productive platform play, several recent examples of this trend and how it might apply to other point solution providers. The platform potential of a software company is an important consideration for investors. If executed successfully, it can substantially magnify the long term growth opportunity for a company’s stock.
Datadog is a leader in monitoring solutions for cloud-scale applications. They are experiencing significant growth in a large addressable market that is a core beneficiary of digital transformation initiatives. While competitive offerings have recently stepped up, Datadog still enjoys impressive customer expansion. Their product development velocity is breakneck, doubling the number of paid solutions in the last year. Looking forward, they have additional opportunities in adjacent markets. The company is led by two technical co-founders. I will dig into the company’s history, financials, product portfolio, addressable market and competitive landscape. This will set a foundation and investment framework which investors can use to monitor Datadog’s progress going forward.
