DataDog is just getting started
Brian Withers (DDOG): DataDog stock is seemingly in freefall, dropping more than 30% off its high from earlier this year. But the underlying business is stronger than ever. Let’s take a look at the most recent results and why you might look at dipping your toe into this monitoring-as-a-service software specialist.
Its first-quarter revenue growth hit the high end of management's expectations, coming in at 51% year-over-year on which was on top of 87% year-over-year growth the previous Q1. The company attributed existing customer usage growth, higher than expected annual recurring revenue from new customer contracts, and continued low churn for the outperformance. Its top line hit a record $199 million, but that’s not what was most exciting. The company added about 1,000 customers in the quarter bringing the total to around 15,200 and its customers are spending more than ever. Clients that spend $100,000 or more annually make up 75% of the annual recurring revenue (ARR) and are growing at a strong 50% year-over-year rate. With the dollar-based net retention continuing above 130%, its existing customers are a substantial source of ongoing growth.
|
Metrics |
Q1 2020 |
Q4 2020 |
Q1 2021 |
QoQ change |
YoY change |
|---|---|---|---|---|---|
|
Revenue |
$131 million |
$178 million |
$199 million |
8% |
51% |
|
>$100K ARR customers |
960 |
1,253 |
1,437 |
15% |
50% |
|
Remaining performance obligations |
$256 million |
$434 million |
$464 million |
7% |
81% |
Data source: Company earnings reports and earnings calls.
The company’s products are popular with customers. At the end of Q1, 75% of all customers are using more than one monitoring product, which is up from 63% last year. The number using four or more more than doubled to 25%, up from 12% a year ago. This quarter it reported notable customer wins in a variety of industries including consulting, grocery, and financial services. Its broad set of offerings is helping customers make monitoring its information technology simpler and more powerful. This quarter, EVA, an online gaming company, went from eight observability tools to standardize on DataDog’s single platform for all its monitoring needs. Lastly, the strong 81% growth in remaining performance obligations shows that customers are signing larger and lengthier contracts. All of this points to a bright future for this lead dog.
With an addressable market of $35 billion, this monitoring and observability platform is just getting started. But even with the latest drop in the stock, value investors may be scared off by the still lofty 35 price-to-sales ratio. For tech investors with a view that businesses will continue to move to cloud-based services, this (Data)dog could become investors’ best friend over the next decade.
