Datadog Inc at RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (Virtual) Transcript

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

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So you guys are a hot topic. Everybody wants to talk to you guys these days, and I think it's for a lot of good reasons. Maybe Oli, as we sort of reflect back on these last years, you guys had a lot of momentum coming into the pandemic. And I think what we've all learned is the power of software. And with that comes, I think, the realization that if we didn't already know it, it is software is the lifeblood of the economy. Applications are the lifeblood of the economy. And making sure that applications are healthy and safe is more important than ever. Talk about, as you're talking to customers, I mean, we see it in your results, and we see it in peers' results as well. Why is this from your perspective? I mean, what are CIOs telling you? Like I need to ratchet up the spending even more than I was perhaps previously in a post-COVID world.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Now I think I want to start with the question that you get every day, well, I get multiple times a day is, it's such an attractive market but there's a lot of players out there. And you've had a very consistent answer over the years saying like, listen, a lot of this is net new workload. A lot of it is net REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 16, 2021 / 4:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (Virtual) new applications. And surprisingly, the competition, like a lot of these are greenfield deals, right? And I think people still struggle with that sort of thought process given all of the players. And you even look at like a CrowdStrike or a SentinelOne adding observability capabilities on their stacks as well. For just the sake of talking about, when you get into a new deal or even an expansion, I want to talk about your success in APM and logging here in a second. But what do these deals look, just what do they look like today in a market that feels very, very healthy, but also there's a lot of mouths to feed out there?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Go all-in on Datadog. Maybe some of the initial deals were all greenfield or net new workloads or infrastructure. When it gets to sort of standardizing on Datadog, that has to be more of a competitive displacement, pushing out somebody who is perhaps monitoring something that from 5 years ago that when you guys weren't -- when they weren't a customer of yours. When it gets to that level, there is displacement going on at that point?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Think longer term, and I can appreciate that it's sort of scary to think about where you could go if you're just scratching the surface on sort of like full, I don't want to say fully penetrated customers. But what is that? If you look and you sort of like look at a Fortune 100 customer, what do you think like an ARR or an ACV at a customer could be if they sort of went all-in? I mean, are we talking $20 million a year, $30 million? I mean, what is sort of like the dream scenario? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 16, 2021 / 4:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : From people, so I'll start to interject those here in a second. But I think what just has blown us all the way is how well you've done in APM and logging. And you started to disclose an ARR contribution 2 quarters ago, most recently $500 million, still growing at hyperscale. Has the success there surprised you? Is it happening sooner than you thought? Or is it like, I mean, I kind of suspected that it would be at this point at this, because these products aren't that old, right, I mean, relative to sort of your core.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : And the success has been sort of up and down the customer base. This is not just a mid-market success clearly with those numbers. You're having success with the biggest companies on the planet selling APM and logging.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. We got a question in here from an investor. I think it's a good one. It states, how do you balance new product releases? And you guys have been obviously incredibly innovative on that side. But how do you balance new product releases versus technical partnerships, particularly given how fast you're expanding Datadog's use cases?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So that's a great answer. And I guess the follow-up to this was, given that view of the world, which is very customer-focused, do you feel any apprehension from adjacent vendors that partner with you today or do you not sense that?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. That's helpful. As you continue to scale and expand your offerings as we just talked about, are there any changes that you see to the go-to-market engine to position you guys to be $2 billion and then $5 billion of ARR? Or is this, how does this, I guess the question effectively is this, what is the go-to-market motion? How does it have to evolve? Is it more partnerships with GSIs? Just sort of your thought process on the scaling from this point.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So what you're telling us is that the engine in place is enough to get you to your future goals. There may be some tweaks along the way, if so needed, but this is the engine at this point. And it's more about more products and broader distribution. What always interested me early in the story here is very little service, effectively no services. Now I think on this last call, I remember from a callback with you. I don't recall who my callback was with. But there's talk of maybe a few more services, being a little bit more of a service focus. Why is that now? Is it customers required it because these are getting bigger, sort of more comprehensive deals? I'm sort of curious on that side of the house.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : For right now for some customers.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Well, it feels like this is just part of your natural evolution, selling more products to customers at this point more than anything, just more than anything because it was such a lightweight product. I mean, not lightweight, it was a very services-light, feature-rich product initially. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 16, 2021 / 4:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. On the topic of pricing, you and I have talked about pricing for a long time now. We saw the consumption side of it hurt you guys in the early part of COVID. Now it's been a pretty significant tailwind. Is this the right pricing methodology to get you to $5 billion in revenue? Do you anticipate maybe some broader uses of ELAs as customers get up into the, you've already said 8 figures, but 20, 30, 40, 50, whatever the number might be in terms of ARR? Do you think ELAs become a bigger part of this as you continue to expand usage inside of organizations?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So what I'm hearing from you is that even as customers spend more with you, there's a realization of there's a significant ROI that they're seeing. They're not just paying to pay you for fear of like, gee, my Datadog budget is going to explode. There's an actual tangible ROI that justifies that spend and increased spend over time because of the tie to value.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. That makes a ton of sense. I mean, it feels like COVID was a unique experience in that I think it was Q2 of 2020. It's hard to predict if we get an event like that in the future. But it feels like the long-term trajectory, if you believe in AWS and Azure and GCP growth, these are durable trends regardless of that spike that we saw in that one quarter.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Point well taken. On the security side, this is a newer, I shouldn't say it's a newer motion, but you guys are certainly, at Dash, it was a huge focus. This idea of DevSecOps. And so I guess to envision a point in the future where you're going to be talking about a couple of hundred million of ARR in sort of app security, what has to happen there? Because to me, it feels like that's a different buyer. Or unless you're talking to the developer, that's more of a DevSecOps motion where they're integrating security deeper into the app development process along with monitoring, observability. What needs to be done to ensure success in a market where, of course, lots of people are focused on as is in core observability? But just sort of like what are the things that you guys are focused on internally to ensure success within the security side of your operations?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's super helpful. For a company that's thrived really in a COVID scenario, helping customers digitize their journey, as the world starts to reopen a bit, just sort of philosophically speaking, what is Datadog's view of hybrid work in the future? I mean, do you think it's a hybrid world from a work perspective, flexible work? And I guess the dovetail question of that is, you guys have been a low-touch model. A lot of it comes directly over the Internet. But as your salespeople get out and start seeing new customers face to face at maybe a higher level, does that help sort of expand your pipeline an even faster rate than the last 2 years?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : To wrap here, we've got 2 minutes left. We're sitting here a year from now. I don't think any of us would have imagined a year ago that you would have had an APM and a logging business at a $500 million run rate growing probably triple digits. What do you think we're going to be most surprised with a year from now versus kind of what we know today about Datadog?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So it's a little bit of the engine is built. It's a little bit of, it's overly simplistic, but wash, rinse, repeat and just there's a scale factor that whether it's maybe partners or product traction, it feels like it's all part of this building momentum that has secular tailwinds behind it in a competitive market. But still you guys are unique enough that you're winning new deals at a rapid pace and expanding and eventually displacing peers. So I think that's a great overview. For anybody on the line, Yuka here is with us as well. Feel free to reach out to me with any questions. We can put you in contact with Oli or Yuka. But really from all of us here at RBC, Oli, I remember talking to you as a private company years ago and I think at an RBC conference. And to see the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 16, 2021 / 4:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (Virtual) success, it feels like in some regards, you're just scratching the surface on a big opportunity. It really is exciting to see and watch. And so from all of us at RBC, best of luck. And we appreciate your time and support.