Datadog Inc at UBS Global Technology and AI Conference Summary

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

Question: Karl Keirstead - UBS - Analyst : Okay. Well, let's get started. So let's maybe start at a high level, David, and maybe I could ask you to describe your sense of the environment you're seeing. I know on the earnings call, you described the spending environment as being relatively stable. But I think for a lot of us that tried to weave a thread through all of the results across the software industry, it actually felt a little bit better to a lot of people, including me, where we didn't have a lot of blow-ups, the beats were a little bit higher than normal, tone upticked a little bit. So it feels like things are a little bit better, but that's not the message you provided. So could you elaborate a little bit on what you're seeing?

Question: Karl Keirstead - UBS - Analyst : Okay. Why do you think that is, David? Why do you think what you're seeing is enterprise steady improvement, but SMB is not yet? Why that difference, and do you think there's a plausible outlook whereby sort of SMB catches up?

Question: Karl Keirstead - UBS - Analyst : So those are some positives because, David, the call it, the post-COVID unwind eventually ends. Rates induce a little bit more spending on the part of SMB. And then Datadog itself turns around and puts more distribution strength. You can imagine a scenario at some point, hard to say when, but that part of your business might pick up. Okay.

Question: Karl Keirstead - UBS - Analyst : Okay. Let's -- so the one positive we just talked about is steady improvement on the enterprise side. The other, what I thought was a big positive from your last print was the, quote, the growth of the AI natives. Now 6% of data dogs ARR up from 2.5% a year ago. That's phenomenal. Even if it's concentrated, it's phenomenal. But when -- on your print, it initially created a little bit of a mixed reaction. There is a good and a bad. It's great that you're attached to a customer segment that's growing so quickly, but you did highlight that there could be a catalyst for some of these AI natives to search for better pricing upon contract renewals or optimize their spend. So I think the investor community was a little bit mixed initially, but I think as you can see in the stock price, with time, I think they cited on the more favorable view of the exposure to AI natives. So can we talk about both sides? When you were talking about optimization, David, what are you referring to? Is there sort of a contract restructuring moment coming up where if they're blowing through their comments, they would naturally want to get lower unit pricing. And then the positive would be if there's some kind of reset? After that point, you would grow off that reset base?

Question: Karl Keirstead - UBS - Analyst : Okay. And David, how do you think about the risk profile of this group? I know you haven't named names, but if those AI natives are highly concentrated among, call it, the premier AI natives. I'm talking about the open AI topics, versus a scenario where they're concentrated among AI start-ups that the investment community needs to ask whether they'll even be around in two years, those are two very different outcomes that have different risk profiles. Is there any way to help us evaluate the risk profile of those AI natives, anything qualitative you can say without naming names? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:55PM, DDOG.OQ - Datadog Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS - Analyst : Okay. Good. And maybe one last one on these AI natives. Can you describe what a common use case is for Datadog? How are these AI natives utilizing Datadog? What are they monitoring exactly?

Question: Karl Keirstead - UBS - Analyst : Okay. Let's talk about the other way that Datadog has AI exposure, other than selling your core product to these new exciting high-growth companies, you yourself have AI products in the form of things like LLM observability that you're selling. Can you give us an update on how that product launch is going? I know it's relatively early, but anything you can share?

Question: Karl Keirstead - UBS - Analyst : Exactly. We'll get to that -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:55PM, DDOG.OQ - Datadog Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS - Analyst : Okay. And then you alluded to it, but the other obvious way that Datadog benefits from AI is when your customers begin rolling out AI applications that require observability.

Question: Karl Keirstead - UBS - Analyst : Well, that's the question I wanted to ask you about the broader pull along, David. That's your observation about where enterprises are on their journey is coming out of pilots and taking model-based AI apps to 5,000, 20,000 employees because I'm actually even in my own work, starting to hear some companies when I ask them what piece of the tech budget might get pulled along as they roll out their AI applications. I am beginning to hear some of them mentioned that my observability spend might need to ramp. So I wanted to ask where you think enterprises are in that rollout process? Are we hitting an inflection point where you and your team are beginning to hear that there's a significant ramp in rollouts?

Question: Karl Keirstead - UBS - Analyst : Okay. Let's switch subjects as interesting as AI is to a couple of others. One is on the pricing side, David. So in a lot of the customer conversations we have around data, to put it simply, love the product, but not cheap. And so I wonder what Datadog is doing to get those customers over the hump on the pricing side? Whether there's any impetus to maybe move to a more flexible pricing model. What are the kind of things you're doing to address that concern?

Question: Karl Keirstead - UBS - Analyst : Got it. Okay. I also wanted to ask you a little bit about competition, David. You mentioned when we were chatting earlier that you're on your way to reinvent tonight. So specifically, I'd love to ask you about the relationship with AWS and hyperscalers because I think, one of the attractive aspects of the Datadog story is, in contrast to a number of the consumption-based data software firms that are competing very directly with the hyperscalers. I've personally never felt like Datadog is up against an enterprise-grade version of observability from the hyperscaler perspective. So I just wanted to get your impression of that and what the nature of the relationship is with AWS, friendly enough to be -- for you to be heading up to reinvent. So my sense is it's more it's more friendly than it is an enemy relationship. But can you opine a little bit?

Question: Karl Keirstead - UBS - Analyst : Okay. Got it. let's move the conversation to sales and marketing, David, because I think that's actually an interesting part of the Datadog story. And in particular, on this last call, you made a comment implying that Datadog wants to lean into the sales and marketing effort more. I think you've articulated a view that your sales headcount growth could even pick up a little bit. So why are you doing this? And how can everybody square that with comfort in the margin story? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 3:55PM, DDOG.OQ - Datadog Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS - Analyst : And David, the inflation of those investments to your margin outlook? Does that imply that we should be thinking more flat? Or are there efficiency gains you can extract elsewhere such that there's still potential for additional margin gains despite that uptick in sales and marketing spend?

Question: Karl Keirstead - UBS - Analyst : Makes sense. We've probably got time for one or two questions, okay to take a few, 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. DECEMBER 03, 2024 / 3:55PM, DDOG.OQ - Datadog Inc at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS - Analyst : Anybody want to ask one, feel free to raise your hand. I think we've got a mic around as well. Okay. in the front. A small enough room that you might be able to just ask it out loud. Unidentified Participant (inaudible - microphone inaccessible)

Question: Karl Keirstead - UBS - Analyst : Okay, the question was, can you describe the competitive landscape in India?

Question: Karl Keirstead - UBS - Analyst : I'll ask another question, David. Obviously, since the Trump administration win the election, there's all kinds of buzz about the federal government getting more efficient, presumably through the use of technology. How are you viewing this as an opportunity for Datadog? And can you remind us what portion of your revenue mix actually comes from the US federal government?

Question: Karl Keirstead - UBS - Analyst : Yes, I get it. Okay, good. Why don't we end -- time for one more? 38 seconds, but it's going to be a good one. Unidentified Participant (inaudible - microphone inaccessible)

Question: Karl Keirstead - UBS - Analyst : Good. Why don't we end it there, David. Yuka, thanks for coming to the UBS event.