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OK, it’s time to dig into the nitty-gritty of Datadog $DDOG.
The following is what I have found from running the company through my “SaaS-o-Matic” investment framework.
Brace yourselves & grab a cup of coffee. Here we go!
*No position in $DDOG. https://twitter.com/7Innovator/status/1261317643103096839
The following is what I have found from running the company through my “SaaS-o-Matic” investment framework.
Brace yourselves & grab a cup of coffee. Here we go!
*No position in $DDOG. https://twitter.com/7Innovator/status/1261317643103096839
Datadog $DDOG is a cloud-based platform that provides monitoring & observability at all points of the software stack.
It helps IT folk track issues in software performance to avoid downtime & improve user experience.
Here's a link to my $DDOG framework: https://docs.google.com/spreadsheets/d/1j3rbalDuZqZ3lmqzn37NSRPfpUYz0On6NuGFBDJe5QE
It helps IT folk track issues in software performance to avoid downtime & improve user experience.
Here's a link to my $DDOG framework: https://docs.google.com/spreadsheets/d/1j3rbalDuZqZ3lmqzn37NSRPfpUYz0On6NuGFBDJe5QE
The company has grown very quickly.
In 10 years, it's already surpassed $360m in annual sales & attracted more than 10,000 customers.
That's incredible growth, supported by what Gartner believes is a $37B mkt oppty for IT Ops Mgmt.
In 10 years, it's already surpassed $360m in annual sales & attracted more than 10,000 customers.
That's incredible growth, supported by what Gartner believes is a $37B mkt oppty for IT Ops Mgmt.
And because it's cloud-native, $DDOG's gross margins are also very high. GM was 75% in 2019.
The company has plowed that into R&D and sales & marketing. R&D was 31% of sales last yr, and S&M was 40%.
Even better: R&D is increasing as a % of total sales, while S&M is decreasing.
The company has plowed that into R&D and sales & marketing. R&D was 31% of sales last yr, and S&M was 40%.
Even better: R&D is increasing as a % of total sales, while S&M is decreasing.
Let's look a bit closer at those costs.
Comparing Sales & Mkt spend to the customer count, $DDOG's spending ~$52k per new customer. This has increased in recent years.
[Note: not a perfect analysis, since a good portion of the sales budget is being used on existing customers.]
![Let's look a bit closer at those costs. Comparing Sales & Mkt spend to the customer count, $DDOG's spending ~$52k per new customer. This has increased in recent years.[Note: not a perfect analysis, since a good portion of the sales budget is being used on existing customers.]](https://pbs.twimg.com/media/EYZX0JDXsAA1McN.jpg "Let's look a bit closer at those costs. Comparing Sales & Mkt spend to the customer count, $DDOG's spending ~$52k per new customer. This has increased in recent years.[Note: not a perfect analysis, since a good portion of the sales budget is being used on existing customers.]")
Comparing Sales & Mkt spend to the customer count, $DDOG's spending ~$52k per new customer. This has increased in recent years.
[Note: not a perfect analysis, since a good portion of the sales budget is being used on existing customers.]
$DDOG's R&D and overhead burden are ongoing & cost around $14k per customer each year.
That burden has doubled during the past two years.
That burden has doubled during the past two years.
But even with those increasing costs, $DDOG is also getting significantly more revenue per customer.
Subscription margin per customer has nearly doubled in two years, and is now $26k/customer.
When taking out the R&D and overhead, each customer is contributing around $12k/yr.
Subscription margin per customer has nearly doubled in two years, and is now $26k/customer.
When taking out the R&D and overhead, each customer is contributing around $12k/yr.
So now, we discount future contributions to the present.
Assuming an 10.5% discount rate ( $DDOG is a $21B company who's entirely equity-funded ) and a customer churn rate of 7% (as suggested by mgmt in their S-1)...
...we obtain a gross Customer LTV in 2019 of $87k.
Assuming an 10.5% discount rate ( $DDOG is a $21B company who's entirely equity-funded ) and a customer churn rate of 7% (as suggested by mgmt in their S-1)...
...we obtain a gross Customer LTV in 2019 of $87k.
And when pulling out the upfront new customer acquisition costs, $DDOG's *Net Customer LTV* was $35k last year.
This has increased in recent years, but not hugely. Net cLTV has grown from $28k in 2017 to $35k in 2018 to $35k in 2019.
This has increased in recent years, but not hugely. Net cLTV has grown from $28k in 2017 to $35k in 2018 to $35k in 2019.
So here are my conclusions.
1) First and foremost, $DDOG is an expensive stock!
At its $21B market cap, DDOG is selling at a rather generous 58X multiple of last yr's sales.
Even at its current run-rate, it's still at 40X full-year 2020 revenue.
That's a premium valuation.
1) First and foremost, $DDOG is an expensive stock!
At its $21B market cap, DDOG is selling at a rather generous 58X multiple of last yr's sales.
Even at its current run-rate, it's still at 40X full-year 2020 revenue.
That's a premium valuation.
2) Observability & monitoring is a lucrative $37B market. But $DDOG also competes with several others, including $NEWR, $SPLK, $DT, & $ESTC.
$DDOG is scaling, but not as quickly as I'd like to see. Everyone in this space is growing. But can they do it profitably?
$DDOG is scaling, but not as quickly as I'd like to see. Everyone in this space is growing. But can they do it profitably?
3) This is likely a large enough market to rise all boats.
$DDOG's 130% DBRR & large customer growth are encouraging.
As an investor, you should demand to see incredible results from this company for quite some time.
The shares are priced accordingly. https://docs.google.com/spreadsheets/d/1j3rbalDuZqZ3lmqzn37NSRPfpUYz0On6NuGFBDJe5QE
$DDOG's 130% DBRR & large customer growth are encouraging.
As an investor, you should demand to see incredible results from this company for quite some time.
The shares are priced accordingly. https://docs.google.com/spreadsheets/d/1j3rbalDuZqZ3lmqzn37NSRPfpUYz0On6NuGFBDJe5QE
