DataDog Q2 FY12/24 Earnings Review

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What Recession?

by Alex King, CEO, Cestrian Capital Research, Inc

DataDog revenue growth has held steady at around 25-27% p.a. now for the last four quarters. The company is clocking in around $2.4bn of TTM revenue so the growth rate is solid for the size of company. The Q3 guide is for a drop to the 21% level; and growth in the order book as measured by Remaining Performance Obligation (RPO) fell to +43% this quarter (from +52% last quarter), so there may be some clouds on the horizon, but so far all looks healthy. Generally speaking with niche infrastructure vendors like this you have to look for slowing growth across the board - eg. at Dynatrace ($DT) and other competitors - to see if the category is reaching saturation point amongst target customers. Whilst the headline numbers and order book slowing suggest this may be an issue, a nugget in the company’s earnings release to the contrary caught my eye. The company stated that amongst their customers using GPU-based servers in their datacenters, the spend per instance was 40% higher (the comparator was unsaid but I presume this means GPU drives +40% spend on monitoring compared to CPU). I would expect that the number and complexity of GPU-based systems being monitored by DataDog will continue to increase at speed, so I believe this to be bullish for the revenue line.

Here’s the headlines:

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