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Datadog: The One That Got Away

Jun. 01, 2020 6:49 AM ETDatadog, Inc. (DDOG)25 Comments
Kayode Omotosho profile picture
Kayode Omotosho


  • Datadog is innovating faster than competitors.
  • It is also gaining market share at a faster pace.
  • While achieving these feats, it is improving its margins to drive free cash flow.
  • The market has priced in a huge portion of future growth.
  • Regardless, investors with a huge risk appetite will find Datadog's story compelling.

Source: Revelry Labs

Datadog (NASDAQ:DDOG) is one of the rare cloud stocks doing all the right things. It is growing in an expanding market, improving its margins and cash flow while also making acquisitions to expand its capabilities. These factors have assembled to uphold its momentum. Investors with the risk appetite should consider this investment and hold for the long term.

Demand (Rating: Bullish)


Datadog continues to report attractive metrics that will boost its growth factor. Its global reach and cloud-based subscription model mean anyone can use its solutions. Revenue increased by 87% (y/y) when it reported last quarter. Dollar-based net retention rate (DBNRR) was above 130%. This is impressive because, unlike the dollar-based net expansion rate, DBNRR includes the effect of churn. Billings, which grew 55% y/y, was a bit down. Investors shouldn’t focus too much on billings because COVID-19 will force enterprises to scale down some projects. To achieve maximum cost savings on future projects that will be halted, it’s logical for Datadog's customers to switch from annual billings to semi-annual or quarterly billings. RPO (remaining performance obligation) grew by 82%. Massive RPO growth means more customers are convinced that Datadog will be their future partner. These commitments mostly come after a careful review of competitors. This is a strong signal that Datadog is offering competitive products.

Other impressive metrics include multi-product adoption. Datadog reported that 63% of customers are now using two or more products. This is up from 32% last year. 75% of new logos land with two or more products. This means it is succeeding in convincing customers to adopt new use cases for its platform. This is a promising signal that shouldn’t be overlooked because it means it is opening up a new market for itself. Lastly, customers with ARR of $100k or more grew 89% y/y.

This article was written by

Kayode Omotosho profile picture
Kayode's strategy aligns only with businesses that have competitive moats, solid financials, good management, and minimal exposure to macro headwinds.-------------------------------------Coverage tilted towards tech stocks (IoT, Cybersecurity, Cloud, DevOps, Data management)

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

My advice is just to scale in slowly if you like the company. You will miss too many outstanding companies by just watching and waiting for some crash in the "expensive" stock price that keeps getting more "expensive"
Great article, and since it is the first time I've seen an article from yourself, and am thoroughly impressed, I'm now a Follower too. You seem to have a great balance in seeing the tremendous prospects for these ultra'new tech stocks, but nuance your views with discussion on their valuations. Like @D. Rider, with too many 'scars' from going in too much for the 'bright promise lights' of such stocks, my natural inclination is to wait for a pullback to more reasonable valuation, but it seems as though the tech stocks have an upside momentum that is going to be difficult to break, at least till perhaps Nov 2020?
Meantime, do you have a view on whether the deeply beaten down stocks in areas such as airlines, cruise lines, energy, hospitality and a few 'still neglected' financials are potentially the ones to invest in? As a non-US person, it is difficult to see how the consumer is behaving, right now, esp. since it is clouded by all the unfortunate street protests across USA.
Thank you, and grateful for any thoughts on any aspect of the above....
Kayode Omotosho profile picture
Thanks alpine,

Slide 3 and 29 of this research don't help a bullish thesis in sharing economies

Hi again, Kayode,

Two things:
First, my wife slapped me upside my head last night when she read what I wrote to you (below), saying it could be interpreted as condescending. I was aghast, please accept my deepest apology ;-( I meant it truly in the sense that you younger (judging from your picture and your articles over the past year) investors are miles ahead of old-time investors like myself when it comes to understanding these high-flying cloud software stocks. Your posts over the past year on this sector have proved (at least to us) that you know your stuff. In my investing I've had way too many ones I either let get away or dumbly held onto for too long, but I keep trying. Either way, please accept my apology,
Second, we read thru the above DDOG piece again, and had a question about valuation and possible DDOG entry points: would you (or have you) considered it a good strategy for those who want to initiate a position in DDOG (or FSLY) to write and sell puts?

Say, for example, selling one August DDOG 60 put at $3.79, one August 55 put at $2.25 and one August 50 put at $1.21? Worst case scenario is we keep the $725 premium from writing/selling the puts and end up with no DDOG shares. Or we end up having the shares put to us in which case we end up owning 300 shares at an average cost of $55 minus the $725 put-premiums, so $52.75 would be our entry point for 300 shares.

Guess the question boils down to: do you think the low $50s range is a good entry point on DDOG? Or were you talking about, or suggesting waiting for, lower levels than that, say $40s or $30s when you wrote: "I will be willing to capitalize on occasional corrections to acquire some position."?

Thank you again for the article. Definitely one of the better authors on SA when it comes to these cloud software stocks.
Kayode Omotosho profile picture
Hi D.Rider,

My first assignment before publishing a thesis is to make sure I put major risk factors in the boldest font for investors.

Due to my value driven style , I hardly recommend Options.

There is a solid demand side tailwind propelling cloud stocks with the solutions to solve publoc and private cloud problems.

I'll prefer to solve the risk appetite uncertainty problem by initiating the smallest position now. Then I will average down with time.

Trading cloud stocks is tough and I try to help investors ensure they don't lose money. My obsessive focus on ensuring capital preservation has no doubt led to missed opportunities.

He who fights and runs away. May live to fight another day
caltiger profile picture
Impressive in-depth knowledge on the sector, Kayode. I have no hesitation in pressing the Follow button. I'm new to DDOG, but quite impressed by what i have read both here and in a recent Forbes article. Will look for a suitable entry point, as it looks like its a long-term winner. Haven't heard of FSLY, but the comments perk up my interest, and I will look it up, as well as await any future write-ups from you.
Kayode Omotosho profile picture
Thank you caltiger.
Kayode, the "one that got away"??

Several decades-long investor here, still trying to hang in with you youngins' and these wild growth stocks. DDOG is rich now, yess, but still a viable mid-term hold imho. But referring your title: "the one that got away"? Young sir, we need to sit down and have a drink together so you can hear so stories from an old man, unfortunately all of which are true, like about not only the ones "that got away" from him, but the ones "that he held onto" like a fool ;-/
El Financeiro profile picture
Thanks. This DDOG is definitely in my targets. Hoping for a nice pullback for an entry point.
Kayode Omotosho profile picture
Same here
Thanks for the article. Tech is a fast moving sector and difficult for the broad market investor to monitor. I recommended both DDOG and FSLY to a colleague in March. He bought both and made out well. I should have followed my own advice and bought also but I did well with what I did purchase.
Kayode Omotosho profile picture
You're right. Catch some, miss some.
If either come back down, I won't miss them second time
Kayode Omotosho profile picture
Definitely. Its important to do some product analysis. Regardless, it's tough to go wrong with systems of records + machine learning
An investment that far outweighs any potential risk , staying long DDOG and will add more on dips !!
HardytheTrader profile picture
Agreed, $DDOG offers great products and excellent execution. Strong buy on any significant dips. Right now a bit overheated for my liking

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