Datadog Inc Q3 2024 Earnings Call Summary

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

Question: Mark Murphy - JP Morgan Chase - Analyst : Thank you very much and congrats on another very healthy performance. Olivier, we noticed your AI contributions surged to about 6% this quarter. We're watching all the advances in the foundation models, including the OpenAI's strawberry version. We're watching the multistep reasoning, how they're becoming multimodal, the longer duration inference and video models. 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call Does it seem reasonable to you that we are on the cusp of a pretty interesting period in the next couple of years for the inferencing loads and that might drive some incremental traction for Datadog that is tied to AI? And then I have a quick follow-up for David.

Question: Mark Murphy - JP Morgan Chase - Analyst : Okay. Understood. And then, David, to the extent, and you've always said that revenue is a better indicator than billings and RPO. But to the extent the billings growth was affected by timing, as you mentioned, we've seen that before. We know it can bounce around. But did you have some invoices that would have gone out in September and instead, they were issued in October? In other words, would we see some recapture of the timing element in Q4 or perhaps in early next year? Or is it some other dynamic there?

Question: Mark Murphy - JP Morgan Chase - Analyst : Excellent. Thank you again.

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes, thank you for taking the questions. Olivier, in the framework that you sort of laid out for the business, Observe, Secure and Act, I wanted to focus on the last two pillars, Secure and Act. When we think about how the security, cloud security, sales motion has been going this quarter versus prior quarters. Any trend lines there? And any sort of early indications on the uptake of some of the service management products and more of the automation features within the Datadog platform?

Question: Sanjit Singh - Morgan Stanley - Analyst : That's great to hear. And sort of one follow-up going to sort of the spending intentions from your customers. It feels like most of the past 12 to 18 months, the sales playbook, particularly in the enterprise has been around consolidation. Is that still the theme in terms of driving new bookings, new expansion deals? Or are you starting to see customers focus more, less about the consolidation opportunity and more about innovation and bringing their innovation budgets to bear to invest in AI and cloud and bringing on Datadog along for the ride?

Question: Sanjit Singh - Morgan Stanley - Analyst : Great. Thank you for the (inaudible)

Question: Raimo Lenschow - Barclays - Analyst : Thank you and congrats from me as well. Can I stay on that subject a little bit longer, Olivier? The, if you think about it, the one big driver for you guys in the past was workload growth, and that's something that we're kind of all watching out for the hyperscalers as well, but it looks like there are stable trends at the hyperscalers and for you as well. Like if you think about the puts and takes there to think that, that's changing, like how much of that is just plain vanilla macro? And how much of that is like taking project resources away, not so much money, but also time for kind of AI, and it's obviously like, as you said, early in its life cycle. Can you just, how do you see that playing out? Because that's the one thing we're all watching out. Thank you.

Question: Raimo Lenschow - Barclays - Analyst : Okay. Perfect. Thank you. And then one follow-up for David. Like if you think about capacity, like where are you in terms of sales capacity in case things are changing? Or how do you think about like increasing, maintaining capacity as we think about the new year? Thank you.

Question: Raimo Lenschow - Barclays - Analyst : That's correct. Thank you

Question: Kash Rangan - Goldman Sachs - Analyst : Thank you very much. Appreciate it. I'm curious to get your thoughts on two things. I'll keep this brief. In the subsequent few weeks after the quarter closed, I'm curious, especially with rate cuts, how you feel the customer feedback has been coming along, particularly on the SMB side since the rate of change has not been discernible at least as of the end of the quarter. 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call And one for you, Olivier. As you look at GPU workloads, what about the company's existing portfolio geared towards CPU applies in a GPU world? And how do you monetize an instance of GPU versus a CPU if that were to make sense? Thank you so much.

Question: Brent Thill - Jefferies - Analyst : Hi, Good morning. David, on RPO, it has been decelerating. It's in focus with investors. I know you've said focus on revenue. But I think many are kind of concerned about the trajectory. And I know you've said, hey, the backlog is strong and you're adding sales capacity and all the things that makes sense that your backlog is maybe bigger than the numbers you're reporting. But can you add any more context to what the pipeline, how you feel about the pipeline? What you think is going on with the metric in terms of the decel? It was a pretty big step down. 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call

Question: Brent Thill - Jefferies - Analyst : Great. Thanks.

Question: Karl Keirstead - UBS - Analyst : Okay. Great. I've got a couple of questions about the comment, David, around some of your larger AI native customers, maybe revenues from them being a little bit more volatile going forward. I guess first question is why do you think that is? Is this just a natural phenomenon of a few of those AI native customers now becoming quite large. And so it's normal that they try to look for better unit pricing and optimization? Or is there something else going on? And then maybe secondly, when you set your 4Q guide, did you embed the assumption of some of these AI start-up pricing and observability trends that you called out? Or no, you're just trying to be prudent and that might be a little bit more of a 2025 phenomenon? Thanks so much. 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call

Question: Karl Keirstead - UBS - Analyst : Okay. That's all very helpful.

Question: Kirk Materne - Evercore - Analyst : Yes, thanks very much. Oli, you mentioned the one federal customer this quarter, larger federal customer this quarter. Can you just talk on broader trends for you all within the federal government and sort of the opportunity there and what you're seeing? And I guess, if it had any positive impact? Obviously, it's their fiscal year-end in September. So just any comments more generally on Fed would be great. Thanks.

Question: Kirk Materne - Evercore - Analyst : Thank you.

Question: Mike Cikos - Needham - Analyst : Hey, thanks for getting me on the on the call here, guys. I just had two quick questions for you. The first on gross margin. Just wanted to get a better understanding. Is there anything you can speak to as it relates to those AI native customers, the intensity of those workloads and then how your products feed into it or maybe even the broader portfolio and the product expansion you've seen. I'm just wondering if those newer products maybe are detracting from gross margin near term here versus some expansion that we can expect as these products scale? That's the first question. 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call Second question was just great to hear that the usage growth continues to trend higher, especially for those existing customers. Does it feel where we sit today in this new environment, like this is par for the course kind of growth when thinking about the usage coming from those existing customers? Or is there a reason to believe that this can actually accelerate if things can move higher one way or another? What would drive that?

Question: Mike Cikos - Needham - Analyst : Thank you very much,

Question: Gray Powell - BTIG - Analyst : All right. Great. Thanks for taking my question. Maybe just a follow-up on Datadog on call. It was good to hear the commentary on that earlier in the call, and it has been coming up more in our field work. So I'm just curious like how should we think about the opportunity there? 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call Is that something that could completely displace a product like PagerDuty? Or is it more of an add-on feature since my understanding is it mainly works with the Datadog ecosystem versus other tools? Thanks.

Question: Gray Powell - BTIG - Analyst : Understood. All right, guys. Thanks very much.

Question: Ittai Kidron - Oppenheimer - Analyst : Thanks. Nice numbers, guys. Oli, a question for you. I think you mentioned in your prepared remarks that 15 of your 23 products are now running over $10 million. Maybe if you look at the ones that are still under $100 million, or under $50 million, where do you see, where are you most excited? Which ones do you think have the highest odds of crossing the $100 million mark?

Question: Ittai Kidron - Oppenheimer - Analyst : That's great. Maybe as a follow-up for both of you. You didn't provide '25 guidance, of course, but are there any thoughts you want to leave us with as we think about '25 and perhaps given where we are in the year. Oli, your initial conversations with customers and 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 07, 2024 / 1:00PM, DDOG.OQ - Q3 2024 Datadog Inc Earnings Call how they think about next year, anything to point out with respect to their behavior or investment areas of focus, which perhaps are different than what they've been in '24?

Question: Ittai Kidron - Oppenheimer - Analyst : Great. Appreciate it.

Question: Ittai Kidron - Oppenheimer - Analyst : Thank you. Appreciate it.