Datadog ($DDOG) – CFO Interview – August 17, 2024
Datadog’s CFO sat down for an interview with Oppenheimer this past week. As DDOG’s earnings report was last week, there wasn’t much newness in the report. Here’s what we did learn:
Vendor Consolidation:
CFO David Obstler sees vendor consolidation within DDOG’s industry as in the third inning. It expects to continue gaining market share in software development, security and operations (DevSecOps) as this trend keeps playing out. Whether it’s experience monitoring, large language model (LLM) observability or DDOG’s cloud service provider entrance, it continues to add to its use cases and ability to displace more point solutions.
Macro:
Obstler was asked how its small, medium business (SMB) category has fared so well amid hectic macro uncertainty. He thinks this stems from two things. First, Datadog’s SMB clients skew heavily to the “M” rather than the “S.” They’re at the larger end of this category. Secondly, he thinks this shows how mission critical DDOG’s products are.
Stable Usage Growth:
Datadog guided to stable Y/Y usage growth next quarter vs. this past quarter. Q3 2023 is when Datadog’s clients practiced their sharpest workload optimization, which weighed on its growth. For this reason, many expected usage growth to accelerate Q/Q for the firm. Obstler was asked if the stable usage growth implies an expected deceleration as comps get tougher starting in Q4 2023. He said no. This is because DDOG’s new client momentum remains strong as of this past week. That new revenue source is more than making up for the very modest weakness in usage growth.
Security:
Security is arguably the best way for Datadog to drive the all-important vendor consolidation for clients. Observability, monitoring and security are all perfectly complementary. Still, Datadog has struggled a bit with product delivery within security. For example, it had to retool its Security Information and Event Management (SIEM) cloud security product to get it to work better with its log management products. It remains “optimistic about the potential attach rate for SIEM to its monitoring tools… but also remains in “build mode.”
