Just finished up a deep dive on $DDOG Never had looked at it much before the past couple weeks, but I have to say that I am intrigued by the business. I’ll share a few of my observations in the thread. This is my first time doing this on Twitter, so let me know what you think!
$DDOG provides IT operations management software and data visualization. It helps IT and operations teams to monitor the performance of their entire IT stack using BYO dashboards. It is consistently adding new products and features to its subscription and usage-based model.
There are three main things about $DDOG that are getting me interested in the business. 1) Incredible revenue growth 2) Rapidly improving margins 3) Management’s commitment to the future
1) $DDOG generated 96.6% revenue growth in 2018, 83.2% in 2019, and 85.6% LTM. If that isn’t impressive, I don’t know what is. It attributes the majority of growth to additional spend from current customers. Its net retention rate has been above 130% for 11 straight quarters!
2) Its Land and Expand business model and bottom up approach to sales is clearly driving revenue growth, but it is also improving margins. In their recent earnings call, the CEO explained that their sales are bottom up. This means that they are not often pitching to CIOs.
2) Instead, IT heads of business units or departments begin using $DDOG and slowly expand their use with the company often following along later down the line. $DDOG ease of sign up and low reliance on sales staff facilitates this. Check out their website to see how easy it is.
2) Due to their sales approach, $DDOG is experiencing improving NOI margins and FCF. Most encouraging is the operating leverage. SG&A expenses have decreased from 54.2% of revenue in 2018 to 48.3% LTM. I am hopeful these trends will continue.
3) Management shows their commitment to long-term greatness in two ways. First, insider ownership is high. Management will make or lose their fortunes based on the performance of $DDOG.
3) Second, they are spending an accelerating amount on R&D. They are committed to being the industry leader and are making the necessary investments to continue to build out their platform.
One major risk for $DDOG is competition: both from large tech competitors and potential upstarts with better models, though switching costs should work in their favor. Another risk is valuation. It trades at nearly 60x sales.
Thanks for reading! I’ll be diving deeper into valuation in the next couple of days and maybe providing an add-on to this thread. In the mean time, let me know what you think of $DDOG. I’d also be interested in learning more about $SPLK. Are they a serious threat?
