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Datadog: A Leader In The APM Space

Jun. 10, 2020 2:45 PM ETDatadog, Inc. (DDOG) StockNEWR, NFLX, SPLK, TWTR22 Comments
Ishan Puri profile picture
Ishan Puri


  • Datadog is a best-in-class player in the APM space executing with a speed that is rarely seen.
  • Recent financial results position Datadog as a leader in the crowded market.
  • I conduct a series of valuation tests that show that Datadog is red-hot, and I would wait for a pull back to buy shares in a big way.


Datadog (NASDAQ:DDOG) is a leader in monitoring solutions for cloud applications. It plays in the competitive and large application performance monitoring (APM) space.

My conviction in the company is driving by a growing market, the team, and the product set. First, we can discuss the market. Digital transformation is a mega-trend that the business is riding, and covid has accelerated adoption of cloud-based tools like Datadog. Second, the company is founder-led and is executing at hyper-speed in terms of customer growth and product development. Third, the product set positions the company competitively in the landscape.

From these perspectives, I am positive on the long-term prospects of the stock and rate them a buy. In the short-term, we may see volatility related to valuation.

Source: Datadog

Market and Product

Datadog is leading the second wave in the cloud infrastructure monitoring market. Below, I will give some context to the market growth and changes, and why Datadog is positioned well.

Infrastructure monitoring and application performance monitoring (APM) has been around for a long time. Some of the features in this space include logging, network monitoring, and security.

Observability - the ability for engineers to watch sites in real time and understand issues facing their live sites - has become an increasing challenge as the Web has grown and applications have become more complex. Companies have created internal teams to capture, store, and visualize performance over time. They also have started to focus on understanding root causes to prevent issues from reappearing in code.

Performance data can mean a variety of things - from CPU data to service availability. The first generation of tools also incorporated log analysis. System logs and application logs are post-mortem reports on errors. Finally, software tools incorporated tracing. Tracing provides a view into how a request moves through an application. As the name suggests, tracing allows

This article was written by

Ishan Puri profile picture
Focused on fundamentals, pricing power, and competitive moats. I like founder-led teams. Looking for the next generation of great businesses, and always open to debating ideas with others.

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.

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Comments (22)

I totally agree with @LostOkie51 I've been accumulating 3 months ago from 30's. I Sold off 1/2 when I doubled it.. should've just kept riding it, but wanted to take the top off and now wrote calls once it hit above $80.. I may lose out on the calls, but that's ok since I booked some profit as a cushion. Great company with bright future with these young guns leadership.
Any research into Datadog's go-to-market strategy? Is the pricing / bundling highly competitive? Maybe the APM along doesn't stand out in that crowded market but the price for a bundle and speed of deployment makes it a top choice for new demand.
@Michael_Shan it's land and expand. They usually landing few seats or some small volumes and then expanding from there.

Pricing wise it's a mix between volume/usage and seats. Usage pricing is pretty good fit in Covid/post Covid world as even if their clients would fire people (less seats), but transformation to cloud will be still increasing, their revenues will go up and not down as volumes will be increasing.

The best thing is that they do not as a rule displace "old" players as most of the cases are greenfield deployment. That's very good sign.

For the products - technical guys gave their view on this board - people like it for sure.
Water Buffalo profile picture
DDOG is wildly overvalued, yes, but some companies just trade at those valuations for extended periods. I bought a few shares earlier this month at $71 and change and I'm already ahead.

Trick is I did that with a very small portion of my overall portfolio (well under 1/2 of 1 percent). Large portions of your wealth should not be in this name, IMHO. That would be speculating, not investing.

Never forget the lessons of the dot com bust. I haven't. I will revisit my purchase in about 10 years and DDOG will either be at $0, limping along, or 10X what I paid for it. I am ok with any of those outcomes.
jkowall profile picture
DataDog is weak in APM today but growing. The product is new. Learn about the market and differences between tools. The article shows a lack of market grasp.
They aren't "weak" in APM, just new.
Thank you Ishan. My diligence also suggests that DDOG is the clear winner in a growing market. Company currently trades 35x Forward Revenue. Almost 2x the multiple of comparable companies. Seems like the valuation is overheated now.
Thanks Ishan! DD is also a great company to work for. If you are waiting for a pullback I wouldn't hold my breathe considering we raised our guidance on the last earnings call ; )
Splunk will continue to do well especially with the GCP partnership but after personally using DDOG, New Relic and Splunk it is clear that DDOG provides the superior product. The ITOM market may currently be around $23 Billion but it may double in the next 5 years. Long DDOG!
How does Datadog compare to Dynatrace, which has been the No. 1 position in Gartner's APM Magic Quadrant?
Ishan Puri profile picture
Growing faster, more complete suite
20 Jun. 2020
DDOG is mainly metrics & infra monitoring that expanding rapidly into APM (thanks to opensource that has accelerated this), Logging (through an acquisition) and recently introduced security that mainly leverages security, Synthetic (accelerated through an acquisition), Real User.

DT provides more complete and deep full stack observability that covers infra, network, application and synthetic, real user, mobile and session replay that differentiates through automation, and intelligent AI.

DDOG has excellent Dashboards for those that want to chart metrics and Data while DT has deep AI capability that reduces time spent in Dashboards as it provides more precise analysis and root cause analysis.

Technology wise Dynatrace has a superior Automation, AI and DEM while Datadog provides a highly flexible and modular metric acquisition and dashboarding.
Thank you Author. Great write-up.
What do you think would be the right entry point for datadog?
Ishan Puri profile picture
I would wait for a pullback
fnabais profile picture
I agree. Point is, pull back may not happen. I have been waiting for pull back and still have no shares.
HardytheTrader profile picture
What about the pullback just three months ago? It feels like a distant memory by now, but it was real

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