Datadog reported its latest earnings last night, posting record numbers and continuing the expansion of its Amazon Web Services partnership.
Feb. 11, 2022
Too often, B2B software-as-a-service (SaaS) businesses can be a difficult industry to understand if they happen to be out of your wheelhouse of expertise. But, considering the potential these high margin businesses present, we can always learn more as long-term, opportunistic investors.
Datadog (NASDAQ: DDOG) is one of the few high-flying names that hasn’t fallen far from all-time highs, and there’s good reason for that too — monumental growth.
What does Datadog do?
Datadog is an application performance monitoring (APM) platform that collects and analyses data for online businesses. This is an essential enterprise tool for businesses large and small to see how actions are influencing operations. By monitoring those results, companies can improve business systems to make them more efficient through the insights Datadog provides.
Datadog’s Q4 earnings
Datadog stretched its reach in the large customers segment adding another 101 clients that are contributing more than $1 million in annual recurring revenue, bringing the total now to 216 clients altogether. Datadog also reached a crucial milestone achieving more than $1 billion in revenue for the full year of 2021.
Despite a smaller increase in marketing spend from the year prior, there was a massive 84% year-over-year (YoY) revenue growth in this quarter which speaks volumes about Datadog’s cross-selling strategy — once the customers are in and interacting with the platform — the sales are generating themselves.
The company has also extended its global partnership with Amazon Web Services (AWS) which has the potential to drive further growth in the years to come.
The AWS and Datadog relationship potential
AWS has more than a million active customers worldwide, which will allow Datadog to reap the benefits of an absolutely massive consumer base. Compare that with the total number of customers Datadog itself has right now — roughly 18,000 — and we can see the extent to how important this relationship is. While Datadog has grown into a large player over the last number of years just shy of $55 billion in market cap, that’s just a fraction of other SaaS giants like Salesforce trading close enough to a $215 billion valuation. Of course, there’s quite a difference when comparing those two when it comes to total revenue, but that story could change in the future.
Conclusion
A lot of Datadog’s services are still very early in their cycle. Brand new products the team are working on in cybersecurity and observability are still yet to be significant revenue streams, but that could all change in the coming years which could amplify the returns on those long term investments.