Summary
- Datadog appears to have compelled customers with a winning formula of cloud-based functionality and competitive pricing, helping to explain its exponential growth to more than 8,000 customers.
- The company's installed base opportunity looks to be remarkably strong so as to provide investors with near-term confidence in its ability to meet or exceed targets.
- Yet, vulnerabilities still exist, and like most start-ups, Datadog's long-term viability is not assured.
- I struggle to quantitatively value the stock but believe it is worth a gamble at current levels. I do attempt to quantify my downside risk in the report.
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1.0 Introduction
As of the filing for its IPO and in less than 10 years, Datadog (DDOG), the IT Operations Management (ITOM) wunderkind, has amassed approximately 8,800 customers. By most measures of an enterprise software start-up, this alone is an impressive feat. Even without looking at its financials, this company - with annual run-rate revenue (“ARR”) that now exceeds $300 million - would likely appear to any new investor as an organization that is doing something right, with its focus on customers running complex multi-cloud and hybrid-cloud application architectures.
Cisco (CSCO) seemed to agree, as it offered $7 billion+ for the company pre-IPO - as do many analysts who push their opinions into either a “buy and hold this superstar now” or a “wait and buy when the valuation comes back down to earth” camp. Forrester identifies the company as a leader in its latest Intelligent Application and Service Monitoring Wave.
Figure 1.1 Forrester Intelligent Application and Service Monitoring Wave
Source: Forrester
I have to say, my own enterprise software sales career included stints at IBM Tivoli (IBM) and Splunk (SPLK), where I was selling into the ITOM space. In the case of both companies, I happened to catch them during part of their exponential growth trajectory. And with those experiences in mind, I would offer to readers that I am impressed with what Datadog has accomplished in a relatively short period of time.
