Category: Investing

Here are the insights you need to know from the Q&A session with David Obstler, CFO, and Olivier Pomel CEO.

R&D Investment

Datadog’s efficient sales model, focused on low friction trials, purchases and land & expand sales motion, enables the company to make outsized investments in R&D. According to Pomel, “We are hiring as many engineers, as quickly as we can.”

Slowdown in spending

Datadog is not worried (yet) about a slowdown in customer spending. According to Obstler, “We have lived within our means, not boom or bust.”

Gross retention is a metric closely watched by Datadog, and customers need to have a monitoring platform in place. Either Datadog, or something like it. Of course Datadog is more than infrastructure monitoring, but you get the idea. Datadog provides must have capabilities so that an organization can develop, test and run applications.

Pomel and Obstler both talked about the efficiencies of Datadog, to consolidate spend and provide Automation. By a sustained focus on Developer productivity, Datadog helps company IT budgets reduce spend in their largest area: engineers.

Target Addressable Market

Datadog’s Target Addressable Market is far in excess of $100 Billion.

Spending in observability, the core value proposition of Datadog, is expected to grow to $62 billion in 2026, according to Gartner Research.

Overall spending in security will rise to $188.3 Billion in 2023, with cloud application security growing the fastest at 26.8%. Datadog has been investing in could application security, beginning with its Sqreen acquisition in 2021.

It is still early innings with respect to the Digital Transformation and Cloud Migration. Datadog is core to both long term trends, as the legacy solutions companies are using today simply do not work in the Cloud. Datadog is the natural, cloud-native solution that will be considered for every project.

Platform approach continues to resonate with customers

Datadog’s fast paced innovation is paying off with customer purchases, and sets up a multi-year acceleration of revenue. The number of Datadog customers using two or more products has increased to almost 80%, those using four more products has increased to 37%, and those using 6 or more products has increased to 14%. For a company that had only one product five years ago, this is remarkable.

Pomel noted that the same sales team can sell all solutions to buyers – meaning that Salesperson productivity at Datadog is increasing.

The reason for this uptake is related to Datadog’s platform strategy. All products need to add context and value to the data being collected and solve use cases for engineers. Datadog does not have standalone products – all products are well integrated with the Platform.

You can see this in Datadog’s acquisition strategy, which historically has targeted smaller, earlier stage companies that boast strong talent and entrepreneurial leaders. The teams are brought into Datadog to integrate their code with the Datadog platform, and the leadership runs the product team to grow the business. This has resulted in great success, beginning with Logmatic (log management team that is putting Splunk out of business), Sqreen (application security monitoring), and others.

The future is bright for Datadog as it fixes its gaze resolutely on the horizon, and continues to do what it does best:

• Maintain high customer retention (130%+)
• Grow revenues through its low friction, land and expand model
• Invest heavily in R&D
• Make strategic acquisitions
• Stay profitable and cash flow positive

Thank you for your support!

Datadog held its Investor Day in conjunction with the annual DASH conference. Here are our first impressions about the Product announcements.

Datadog continues to innovate at a rapid pace. Each new product offering or new is designed to save time, prevent downtime and solve problems. Datadog is tapping into new budgets and expanding their TAM (Target Addressable Market). For example, cloud application security, workflow management and cloud cost management.

There are whole companies dedicated to these areas, some of them public, such as Lacework, Asana, Monday.com, or Harness. This is in addition to log management and security offerings that take market share from Splunk and others. Datadog’s ability to take marketshare from customers and send them to the trash heap is remarkable. Examples are:

• AppDynamics: Purchased by Cisco Systems, and rarely heard of in competitive deals
• Splunk: Recently identified as a takeover target. Starboard Value LP acquired a 5% stake in the company, announced on Monday.

Datadog’s continued focus on engineer efficiency, time-savings, and preventing application downtime delivers a solid ROI (Return on Investment) and ensures that the budget for Datadog is prioritized over spending in other areas. Datadog’s rapid product deliver roadmap and integrated platform enables the company to attract spend that might go to other vendors.

Datadog continues to add value to its customers by presenting data with context. The Datadog platform For example, being able to show cloud costs alongside cloud utilization for developers and engineers to see, is a brilliant way to “guilt” people into saving money.

Datadog is well-positioned for continued growth as its contracts allow for customers to start small, with one or two products, and then grow organically. New products can be tried for little or no cost, and at the end of the trial period, customers can choose to continue to use the products at an agreed price. This is the key behind Datadog’s low friction approach.

According to Alexis Lê-Quôc, Datadog customers collect trillions of datapoints today, a staggering volume. With all of this data, Datadog has the opportunity to freeze out other vendors. For example, if Datadog’s security offering meets or exceeds the minimum standard, why use a separate vendor for security? Datadog has the opportunity to capture budget across Dev, Ops, Security

For example:

• Open Telemetry Support: Makes it easier for teams that have adopted the Open Telemetry standard to adopt Datadog.

• Service Catalog: Makes it easier and faster for teams to identify the team that owns each service, contact them or fix the problem in Datadog by rolling back code. All automatically updated.

• Powerpacks: Create a best practices Datadog dashboard in seconds.

• Data Steams monitoring: Identify services in the queue causing bottlenecks, and prevent downtime.

• Cloud cost management: Unifies cost and observability data. Engineers are guilted into saving money by being presented with cost data alongside Utilization data.
• Intelligent Test Runner: Reduces time that a developer needs to wait for testing to seconds from minutes, saving days in developer productivity.
• Continuous Testing
• Dynamic Instrumentation: Instrument code on the fly. Support for Java, Python and .Net.
• Cloud application security: competes with vendors in this space such as Lacework. By creating features that put smaller vendors out of business, Datadog continues to create value for its shareholders and customers.
• Application Security Management: Deepens Datadog’s footprint in cloud application security. Since legacy vendors offerings are irrelevant in the cloud, Datadog is taking advantage of greenfield opportunities to grow revenues and attract new customers.
• AI/ML: Artificial Intelligence and Machine Learning to alert humans to unknown unknowns, troubleshoot issues faster and identify root causes.
• Workflow automation: Helps customers to streamline monitoring and remediate issues faster. Datadog continues to help customers complete their tasks faster, and enables employees to increase productivity.

In a period of time when a potential recession looms, Datadog is well positioned to help its customer to do more with less. If layoffs increase and unemployment grows, Datadog will have more opportunities to help its customers. While a high technology platform like Datadog is not “recession proof”, Datadog is better positioned than most to grab spend from other IT budgets to maintain and grow usage of Datadog.

By consolidating spend to one vendor, instead of many, corporate purchasing officers can negotiate better terms with Datadog, which benefits the customer.

We will be updating our audience with additional insights tomorrow, after we have been able to digest more of the investor day presentations.