Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual) Transcript

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

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : I'd love to start with more of a bigger picture question. You've been public for a few years now. How is Datadog today very different than the Datadog at the time of the IPO?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Right. So great product diversity, clear adoption on multiple fronts with the products with customers. When you go to the website, the first thing that you see are the words monitoring and security, which clearly came from the monitoring space. Security is more of a recent push for you. Maybe if I will try to jump not too far into the distant future, maybe three or four years out, are those words are still going to be the operative mantra of the company? Or you think that, that could evolve and change as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Super interesting. All right. So it seems like clearly many more opportunities ahead for the company. Maybe we should move into the consolidation path. Consolidation of observability space, consolidation of tooling has been something that's been discussed for quite some time. Where do you think we are? If you had to use a baseball analogy, what inning are we in the industry consolidating, meaning in the context of having an enterprise are down into 20 tools into I don't know what you think would be the right balance, but where are we in this process? How do you feel about your positioning in this process?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Yeah, we can hear you.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. That's great. When you think about the personas you're selling into, clearly, infrastructure, you started from there, so perhaps a little bit more weighted towards the ops people. Now you're doing more with APM. Clearly, you've had great success. So getting more traction on the developer side as well. But is there, from a persona standpoint, someone who's trying to lead the consolidation path? And how do you think about that?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Interesting. Maybe just off the top of my head, when you think about the growth that you posted from, let's say, for the last two-three quarters on average, is there a way to think about how much of that is coming through consolidation of vendors versus just true expansion whether vis-a-vis new customer or expansion with existing? I'm trying to think how big of a driver is consolidation to your overall growth?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. So it's clearly meaningful, but obviously, you're having great success with it, and the value proposition resonates with the customers on that front.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Right. And just to fine tune on this one is a commitment. It's sort of like a card blank, right, there's a dollar value that's committed to spend, but it's not necessarily tied to a specific product. And they can ramp up and down as they go with the different products?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Very good. Switching to the macro comments you've made in the last quarter, you've talked about improving fundamentals with large customers. Can you give us just a little bit more color on that? And what in your opinion is driving the recovery with your large customers here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. So SMB has kind of stayed steady from a growth level standpoint.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Same amount of growth. So whatever the rate was, it maintained (technical difficulty) as they say.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Large enterprise meaning over 5,000, there's been an improvement in this.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Improvement, but are they above the SMB level or below? How do I think of them? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. I think you also talked about an expansion of duration in the quarter. It was that tied again to that cohort of 5,000 above, meaning those that are spending a little bit more are now more engaged also with a little bit more longer-term commitments with you. Is that the right way to think of it?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Interesting. Interesting. And when you see them with the longer durations, when you look into the details of that, is that just in the context of their existing tooling, they're just willing to commit there? Or consolidation is part of that path that -- I'm trying to think how much of the -- to your point, they were a little bit behind the digitization. They're trying to, versus also taking advantage of the opportunity to consolidate tool and get some economics back through that move forward.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. That's great. We have a couple of questions from investors. One. Are our customers less or more willing to spend over their commits in overages now versus prior?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Right. So customers generally are good in keeping with the limits of their spend.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Interesting. But it doesn't seem like that they -- once they hit their limits, they don't necessarily bring forward the renewal right now, right?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Okay. We have another question here. Now that we are passing those 2Q comps where we saw most intensely the optimizations last year, if usage growth stays at the same level as this last quarter, wouldn't the business begin to decelerate?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Okay. Interesting. The nuances of usage growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : But nonetheless, I mean, the usage growth clearly right now is higher than it was a year ago. And over the last 12 months, you've added a very good healthy amount of new customers, which perhaps don't consume that much. But by now, we have 12 months of accumulated new customers that could account so, got it. So something unusual should happen for you to decelerate, which in this economy, of course, can happen, but --

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Going back to the smaller customers, the SMBs, you've talked about them being steady growth, if I remember correctly. It's a little bit strange, right? I mean one would think that those type of customers in the current macro environment will be much more sensitive and will look to cut a little bit more spending. How would you put your finger on this? How would you explain the fact that they've been so solid for you?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Okay. So more than SMB, I guess what --

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Excellent. On the net retention side, you've disclosed NRR of new contents in the past few quarters. What are some of the factors that we need to think about over the next two three quarters that can drive this up for you? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Is this a metric you follow closely within the company? Or sort of like at the end of the quarter, you kind of wonder how it came out, you don't necessarily manage them?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. So is there any color you can perhaps provide on that metric specifically on either region or the customer too, the large ones and the SMB ones like --

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : No, that's the question around how do I get some color on the customer tiers and regional? What can you say about that?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. All right. That's great. Switching to AI. Maybe you could talk about, first of all, the diversity of the customers here. You've talked about 4%, if I remember correctly, being from AI. But maybe you could talk about how much of that is using your traditional observability tools like infrastructure, APM, logs within those AI companies versus true LLM monitoring being that 4%. How do I think I'll make that distinction?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. And those companies, a large number of them are companies that five years ago didn't exist, right?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : And so how much of -- so the point of consolidation, I guess, doesn't exist with them. Do you already land with multiple products with them? When you think about the average number of tools that you land with a customer in that subset, is it much higher than normal just because it's all greenfield, they never really had anything before?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. And I guess, lastly on this point, a question I got from an investor here. Those customers since they're growing so fast, right, and clearly, their big focus is on market awareness to get their solutions out there. It's clearly have become very crowded and top of mind for many large enterprises to implement AI. How much work are they doing on optimization? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual) Going back to the year ago, just where enterprises were optimizing with you, are the AI customers running optimized? Or they're not paying that much attention to spend in this category right now because they've got just bigger fish to fry as they would --

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Awesome. Switching to gross margins. You don't have an explicit gross margin guidance, but I'd love to get your point of view on kind of the puts and takes of gross margin not just now, but how do I think about a year or two down the road?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Got it. Okay. One question I'm getting from investors is on your work with AWS and Azure, Microsoft Azure. Can you kind of compare and contrast the interaction with those two cloud guys? In what way are they different in the way they work with you? In what way are they similar in the way they work with you?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. And how should we think about the correlation of growth in their business -- their cloud business to required to your growth and what we argue tight versus not? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2024 / 6:05PM, DDOG.OQ - Datadog Inc at Oppenheimer Technology, Internet & Communications Conference (Virtual)

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. That's great. On the infrastructure monitoring side, the core, where you started and still the biggest part of your business, how much of the -- first of all, any way to benchmark the growth in that specific product area, how mature it is for you? And how much of the growth here is just expansion of existing customers versus new logo wins in this category?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Is it still the product you most often land with before adding others?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Very good. Want to talk about security. We haven't talked about that in our conversation here. First of all, how do you feel about the depth of your portfolio here? And if you and I will talk two-three years down the road, what should we expect really in this category for you?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : How far are you from making this your next $100 million product category?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : All right. I'm giving you a chance here, David.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : All right. Very good. Nothing ventured, nothing gained. But nonetheless, clearly, you're doing this, as you say, more of a DevOps angle, more of a bundling exercise. How far do you think that can take you in this category? I mean is there a point in time where you think you're going to have to really step in, refit your completely new portfolio, organic or non-organic, to make this into -- I'm trying to think longer term. Clearly, your goal is not just to make this on to $100 million. You want to make this $1 billion. So with the path there, can it still reach those targets down the road just in the past that you're going or somewhere you're going to have to make a bigger bet here, if you like to call it?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. And is there a timeline by which you think the answer would reveal itself?

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Okay. Maybe they want to keep you on track. This is fantastic. Really appreciate it. Thank you very much for joining us. Thank you for the great work, and regards to the rest of the team.