Datadog Inc at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Fatima Boolani - Citi Investment Research - Analyst : So we're going to jump right into the discussion. Datadog has had a tremendous and significant amount of product expansion and innovation just in the past year, but certainly when I look over the arc of time since the IPO. I think a great place to start for all of us would be if you can give us an update on the platform expansion in this time frame. And where you currently stand in terms of your product suite and just the respective markets that you're now touching versus two, three, five years ago?

Question: Fatima Boolani - Citi Investment Research - Analyst : A lot of great pillar-based threads that I'm definitely going to want to pull on and go into more detail. But before we do that, the last, I would say, 12 to 18 months, have been very much a roller coaster for investors who have gotten much more acclimated to the whole notion in concept of consumption and usage-based modalities of deploying and consuming enterprise software, right? So that's been relatively new and you've -- like I said, been on a roller cost of swords as it relates to how organizations ramped and then maybe rationalize in periods of maybe economic volatility and uncertainty, et cetera. And I know you have very close and front seat to that. So can you take us through the arc of the usage growth trends you've observed over time across different customers, maybe products, maybe verticals, if that's a very specific angle that kind of changes the narrative? And where has culminated in that? Where are we today as it relates to normalized consumption pattern in the aggregate for the business?

Question: Fatima Boolani - Citi Investment Research - Analyst : David, I wanted to go on a little bit of a tangent, specifically from the vertical lens. Some of the discussions and certainly conversations I've had is, hey, the generative AI cohort has been a very exciting area for you in terms of -- I think you've quantified it, [around] 4% of your ARR is coming from, I guess, from a B2B perspective, these generative AI companies that are using the entire Datadog footprint to monitor their own environments, right?

Question: Fatima Boolani - Citi Investment Research - Analyst : So I think there's maybe a degree of debate happening as to, hey, some of what you saw with the cloud native in terms of how hot and heavy they got with the spend and having to rationalize, is there potential for that situation to transpire with kind of the generative AI because it's so new, it's so embryonic, it's growing so quickly? So how would you maybe debunk some of those considerations or concerns? Or rather, can you draw any parallels between the behaviors of the two such that eight quarters from now, we're not potentially talking about, hey, generative AI companies are now in a rationalization mode?

Question: Fatima Boolani - Citi Investment Research - Analyst : Understood. And zooming out your exposure to more of the VC-backed companies who are naturally more cloud-native, how should we internalize that in terms of aggregate exposure? And from what I'm gathering from your observations and what you're seeing in customer behavior, we're definitely past sort of the open-ended period of ramping, spending, and ratcheting it back. So maybe there was a degree of stabilization and even the way the cloud-natives are spending, but how would you articulate? Is that a correct observation in that, hey, the cloud natives are just better at managing their own businesses now? And to the extent some of that risk doesn't creep back in because you do have exposure to (multiple speakers) --

Question: Fatima Boolani - Citi Investment Research - Analyst : I appreciate that color. Thank you. Let's go back to kind of the product footprint and how the platform is being deployed and scaled within your customers. So I want to start with what is your largest, most dominant, kind of most mature solution area, which is infrastructure monitoring, right? That's your climb to fame. $1 billion-plus ARR footprint. What observations can you share to give investors the confidence that, hey, this is still a growth engine for us, even though it's our biggest? And why there is still significant runway for the infrastructure monitoring set of solutions to continue to have very strong growth?

Question: Fatima Boolani - Citi Investment Research - Analyst : You all have a very close relationship, and Oli feels very strongly about all the work you're doing around OpenTelemetry, right? So the whole concept of just make it easier for enterprises to firehose and ingest for data. So you just ¡ you see more, you know more, you can do more, right? I think functionally, that's the thesis, right? So when you think about OpenTelemetry, how do you kind of navigate some of what might be less monetization opportunity for you because you are democratizing the ability to gather more data? I mean, how do you kind of straddle that openness to being OpenTelemetry but also your ¡ you've got commercial software intellectual property, how do you navigate that?

Question: Fatima Boolani - Citi Investment Research - Analyst : I want to move to the APM side of the house. Still a relatively new product area for you, I think, introduced maybe three years ago in earnest, four years ago in earnest.

Question: Fatima Boolani - Citi Investment Research - Analyst : So a lot of interesting things happening on the application performance monitoring side, very natural kind of ¡ the swim was very natural for you. I want to tackle this with a number of different angles, right? So first and foremost, the consolidation generally we've seen in the observability arena. As a general matter, how has some of that shake up in the market structure impacted your business and/or the types of conversations you're having with customers in terms of what type of more visible opportunity that brings for you from a wallet share perspective?

Question: Fatima Boolani - Citi Investment Research - Analyst : So two-parter on this. In the heat of the pandemic, I think APM and logs tended to see the most upward elasticity, right, in terms of usage, and that's probably been where you've seen ---

Question: Fatima Boolani - Citi Investment Research - Analyst : Infra and logs. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 2:00PM, DDOG.OQ - Datadog Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi Investment Research - Analyst : Okay. That's very helpful. So outside of just more rational buying behavior, what have you done institutionally. The go-to-market organization has done institutionally to just be mindful of not being caught off guard in terms of erratic customer spending behaviors, right? You clearly have learned through the pandemic. You have a lot more data points. So what have you done intrinsically to just have more visibility that the higher elasticity and infra and logs, some of that, you could try to have more under your control, so it's not as erratic?

Question: Fatima Boolani - Citi Investment Research - Analyst : So you brought up gross retention, so I have to bring up net retention. Just from a net retention rate standpoint, a number of different vectors here that contribute to the outcome or the output of that KPI. You were punching very much above your weight class. You're still kind of upper watermark for all the enterprise software on net retention rate levels in the aggregate, but we are below the historical high watermark, right? So can you talk to some of the key drivers that can really fuel a re-expansion and an improvement here? And what is the balance that you're trying to strike between increasing usage of existing products, flagship products that everybody knows and loves you for, but also driving more multiproduct capabilities?

Question: Fatima Boolani - Citi Investment Research - Analyst : Part and parcel to this is your engagement with customers more and more on a multiyear basis, right? We can see that in some of the backlog metrics you disclosed. I know you don't manage the business to that. But as you think about driving this type of multiproduct behavior, as you drive incentives to push those outcomes, the observed trend of customers doing more multiyear deals, how is the go-to-market organization evolving, maturing to kind of those types of engagements? And relatedly, how is the philosophy around ELA, EAA, bundling type conversations, how are those evolving? Because I know historically, you've taken a very firm stance that, hey, we don't want to just offer a buffet. We actually want to see what customers are using, so we can extract value and understand where we want to invest. So I get that ethos, but large companies are large companies. They're used to doing business in a certain way. So how are you combating some of those demands from larger enterprises?

Question: Fatima Boolani - Citi Investment Research - Analyst : On this trend around upsizing transactions and deals, we've seen a lot of momentum there. Can you frame for us a vanilla infrastructure monitoring customer? When they do, their eyes light up and they see the value from APM. And then you've gone further, see the value from synthetics. Can you talk a little bit about quantitatively how that influences the scope of the initial commit? And then -- these are maybe some of your more established areas, how does the conversation change even more when you talk about security, when you talk about cloud service management? So anything around uplift or contractual size or commit size improvements as more and more goodies get added to the commit?

Question: Fatima Boolani - Citi Investment Research - Analyst : Where are you performing from a security standpoint relative to your initial expectations? I think there's still some tinkering going on with the portfolio for the product and go-to-market standpoint, you just alluded to that. So where is it performing at current levels and where do you want it to be?

Question: Fatima Boolani - Citi Investment Research - Analyst : What are the types of -- I don't know if ARPU is the right way to think about the DevSecOps opportunity? I think not too long ago, you decided to institute more bundles, right?

Question: Fatima Boolani - Citi Investment Research - Analyst : So that's been one approach to kind of really galvanize the momentum in DevSecOps. Any feedback on what the reception from customers have been to this? Because the persona is adjacent, but not exactly the person that you're saying the portfolio to. So any lessons they've learned in the data points you've been building via the sale of DevSecOps bundles? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 2:00PM, DDOG.OQ - Datadog Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi Investment Research - Analyst : (technical difficulty) bundle (technical difficulty) --

Question: Fatima Boolani - Citi Investment Research - Analyst : You're pursuing all of these growth objectives, multivector, multiproduct kind of tweak in, jiggering the go-to-market as you go along, specifically in these areas and cloud service management, you talked about really ripe opportunity to monetize workflows for organizations that are already captive inside Watchdog, right? Just from a financial model perspective, it doesn't seem like you've missed a beat on delivering incremental profitability while still pursuing these growth objectives, right? So what's the sauce here? Why are the unit economics so high? And I mean the other angle I want to ask you about, as you've said this earlier, you do have your sales folks and your sales organization. They're moving upstream selling to enterprises. Those are harder to sell to, longer sales cycles. And yet, there's still not -- there has not been a significantly deleterious impact on your margins. So what's the secret?

Question: Fatima Boolani - Citi Investment Research - Analyst : Is there anything you can share with us on, hey, each incremental product, 50%, 60%, 70% of it drops to the bottom line? Again, maybe trying to quantify a little bit of that efficiency of just the core product architecture that allows that frictionless adoption. So any sort of quantitative finer points you --

Question: Fatima Boolani - Citi Investment Research - Analyst : David, I want to end the conversation on how you're thinking about the journey to $5 billion in ARR in revenue from here. What's the force ranking of the things that you're focusing on to get you to that -- into those revenue levels? And how does M&A factor into that strategy?

Question: Fatima Boolani - Citi Investment Research - Analyst : David, I want to thank you for a fantastic discussion. We covered a lot of ground.

Question: Fatima Boolani - Citi Investment Research - Analyst : I appreciate the insight. So [rise] you're having fun.