Datadog Inc at RBC Capital Markets Technology, Internet, Media & Telecommunications Conference 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 I guess, David, for you, you guys came off really strong. There was a lot of concern (inaudible). You guys had really, really nice results. How do you feel about the macro trends you saw? You talked about them kind of post the quarter into October. Maybe bring us through the year because it's been a little bit of an uneven year. Talk about what you said through October.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : We just -- we had a keynote we talked about some of these trends. And I think the term that we talked about at lunch was cloud -- being cloud smart. And as you talk to sort of customers, I mean it's a journey, right? But like, I mean you said like this period of most intense optimization has at least settled out a little bit here. When you talk -- is there a way to sort of quantitatively think about if I was spending X, now I'm doing this, and like this is the new baseline? Or like is there an opportunity, do you think, for sort of getting smarter even with [cloud spend]?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Yes. Interesting. And you said -- so I think you made a comment a second ago, I know you made it on the earnings call, about some of the most heavily impacted customers were actually starting to maybe even do a little bit better and show some like, I don't know, if you said acceleration, but even better trends there. Maybe talk about -- was that because do you think they optimized almost too much and now they're kind of coming back? Or what was the dynamic there?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : One of the things that we look at for you guys and other consumption model, everybody -- we're on the edge of our chairs on [AWS, Azure], GCP prints. When you look at your numbers internally versus what those guys say and how correlated is -- what kind of a correlation do you see? Like others, are you surprised when, I don't know, pick GCP -- pick a hyperscaler -- when they say they're sort of like more positive or sort of more negative comments or is... 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 14, 2023 / 6:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Technology, Internet, Media & Telecommunications Conference

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Excellent...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : No, that's a good -- no, that's -- we're always trying to look for those little incremental nuggets. Last quarter, you talked about larger customers growing at a slower rate than smaller customers. Maybe talk a little bit about that and how this long tail of small customer spending may have impacted kind of net customer additions.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Excellent. And I guess given that consumption pricing model, do you find -- and obviously, we're seeing more and more companies adopt that. And it feels like that's going to kind of accelerate from a new software model perspective. Does that help onboarding? And does that help your onboarding initiative when you're sort of paying for ROI from that perspective?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : You -- so you started out the year, I believe your revenue guidance was 25%, and then you lowered it to 23%. And now it's back to 26%, above where you, I think, initially started. Talk a little bit about your guidance philosophy. I know it hasn't changed. but just help us think about how you build your guidance sort of the assumptions built into Q4?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So I think you said you put more weighting on some of the more recent data points than you did previous -- in your earlier data. I'm curious, when you get into the '24 budgeting cycle, how long will you maintain that Q2 data point as part of your sort of your thinking...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. So that's -- I guess, yes, that's a...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So I guess the -- well, I'm sure there's somebody working on that.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So I guess -- so I mean -- because when I think about that Q2 data point, obviously, there was some negativity in that quarter. I guess the question is like that -- it feels like it's going to be part of your thought process for some time. At some point, it's going to be so far removed that you be like okay...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. That's helpful. from a Q4 perspective, let's just say things just kind of stay status quo. That still implies -- I mean, based off of your discounted assumption, that's still a beat scenario...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Yes. Okay. Bigger beat if things get better?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Yes. Yes. Well, let's keep focusing on things getting better...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : All right. That's helpful perspective. You recently announced 2 new DevSecOps packages, which I thought was really interesting. How do you think about -- I mean they're just brand new, so it's probably -- you don't have much data on it. But like how do you think about things like that driving the model? Like how do you think about that as a driver?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Yes, that makes sense.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : One other -- I want to go back to pricing because I got to ask it, too. There's a real tie to ROI with what you guys do. A lot of us will talk to customers, and they'll say, "Well, I love Datadog. Gee, It's like my Datadog spend just gets really big." How do you think about like -- thinking about those strategic customers? Do you want to provide -- I mean it's not shelfware, right? So like how are those conversations with customers that all of a sudden starts to make $5 million, $10 million a year with you guys? And like I love it, but I don't want it to go to $20 million for what, pick a number. But like how are those conversations?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : The other nugget that I think -- I think it was a new nugget for Q3, you said 2.5% of your ARR was from GenAI companies. Talk a little bit more about that because I think it's a great number. But also for companies that aren't like a bank like RBC, how are we thinking about Datadog from a GenAI perspective as well?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Sure. When you think about -- you didn't guide to '24, and I know you're not going to give guidance today. But if you were thinking about building blocks, you're sitting in our shoes, how do we think about sort of like the major drivers to next year? Obviously, we're all looking at maybe cloud consumption has bottomed and maybe starts to improve, that obviously is a good thing. But how would you suggest we think about modeling without guiding us?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Sure. Helpful. I'm going to pause here a second. Is there any -- is there a question out there? Yes, go ahead. Unidentified Participant Where do you view the Datadog in the -- because we're seeing like cybersecurity coming to the space with CrowdStrike. We're also seeing like ITSM with ServiceNow. This morning, there was GitHub saying they also want to get into [observability]. So where do you see Datadog fitting into this space?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Maybe just on that competitive question. The -- there's $4 billion of Splunk ARR that -- who knows what's going to happen to that in the future. How do you -- what do you guys think about that in terms of like how their customer base aligns with yours and how big of an opportunity that could be?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. Maybe in the last 30 seconds here, that went quick. We're going to -- we're sitting here next year. Fast forward a year, what are we going to be talking about? Like what are some of the most important trends that we should watch when we're sitting here at this point next year, and we're like asking you a questions about...

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Yes. Those would be things -- there's a lot of drivers.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Excellent. Well, that was too quick. I have (inaudible) more questions, but kept going. (inaudible) RBC, David. 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 14, 2023 / 6:20PM, DDOG.OQ - Datadog Inc at RBC Capital Markets Technology, Internet, Media & Telecommunications Conference

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Appreciate it.