As the coronavirus shows no signs of stopping in the short-term, it only delays the economic recovery that was first labeled as a “V-shaped” recession.
I do believe the negative economic news is being understated when the broader global picture is being looked at.
The sad fact is that emerging countries have taken the harder hit to relative GDP than the US and the US has financial levels in dollar-denominated debt that other countries don’t have access to.
While this macro uncertainty remains in the near term, it only gives more proof that investors need to be digital-first and agile and confirms the cloud as the best path to achieve these results over the long term.
The evidence of this transformation is growing with the overall demand in the form of new customers and new use cases existing customers.
Data analytics will facilitate this renaissance towards digital offerings and that is why, for the first time, I am recommending Datadog (DDOG) — a monitoring service for cloud-scale applications, providing monitoring of servers, databases, tools, and services, through a SaaS-based data analytics platform.
Why are they a great tech firm to buy and hold in?
Their 2nd quarter performance was nothing short of breathtaking.
Revenue was $140 million, an increase of 68% year-over-year and they ended the quarter with 1,015 customers with new client accounts of $100,000 or more — an increase of 71% from last year.
As of the end of Q2, 68% of customers are using two or more products, which is up 40% a year ago.
Can you believe that it’s going so well now that 15% of Datadog’s customers are now using four or more products?
That figure is up from 0% the year before.
The support of cloud and other ephemeral architectures is more important than ever as the rapid change from work-from-home has demonstrated the limitation of legacy infrastructure.
Recent macro events like the pandemic that have accelerated the pivot to digital will unequivocally accelerate the migration to the cloud as the economy improves.
How does Datadog become one of the outsized winners?
They offer a broader solution with end-to-end visibility from back-end infrastructure all the way through to the end-user experience and now security as well. And they win because they offer a truly integrated platform for a single paid view into the IT stack.
Analyzing the management, execution was strong, being able to uphold accounts with larger customers who already have sizable cloud environments. Given macro uncertainty, these customers look to conserve cash while they still could and therefore optimize the consumption of cloud infrastructure and those management relationships are critical to preserving client accounts in major players.
Lower quality customers with large cloud deals from AWS, Azure, or Google Cloud look for immediate short-term savings and focus less on Datadog’s management and client relationships.
These quality customers will lead to a high rate of upselling into more robust packages as the broader economy strengthens.
Customers have been highly receptive of the single platform deliverability from Datadog — the customer has been able to move from multiple disparate monitoring tools to using a single platform for all three pillars of observability.
This allowed them to refocus engineering teams on building new features, and not out of the realm of possibility to expect more than 15% in savings from consolidating disparate monitoring and logging vendors into Datadog.
Another example of a recent deal is with a large entertainment platform that continued to upgrade its Datadog packages and now pledge to commit to over $10 million in the year.
This company has decided to increase investment in observability and broader use of Datadog both with new products and by scaling up on existing products.
So now they can use Datadog to quickly drill down into any failed request and easily identify layers. This company is now using all three pillars, including Synthetics, RUM, and NPM, and has standardized monitoring on Datadog.
The pathway to profits in 2020 is now to be a digital-first business, and the cloud is the best path to achieve this outcome.
Datadog will be the primary beneficiary of this trend and remains very well-positioned to win in the market.
In the near term, the macro environment is likely to continue to cause uncertainty, but in relative terms, Datadog will have no problem in scoring new deals as the volume of companies becoming digital will not cease.
Sustaining strong growth both in the near term and over time is something of a safe bet for Datadog and growing from $100 million of annual revenue in 2017 to $200 million in total revenue in 2018, and $362 million in annual revenue in 2019 is hard evidence the parabolic trajectory will continue uninterrupted for the foreseeable future.
I am bullish Datadog and not surprised that shares of the stock are up over 300% in 2020. This is just the beginning of share appreciation.
