Q2 2024 Summary
Published Jan 19, 2025, 1:25 AM UTC- Strong enterprise growth: Datadog is experiencing increased strength in its enterprise segment, with enterprises resuming cloud migrations and expanding their usage of Datadog's platform, including opportunities for consolidation of tools into Datadog's platform. Enterprises are still early in their cloud transformation journey, providing significant growth runway. , ,
- Innovations in AI and logs expected to drive growth: Datadog is investing heavily in new products and innovations, particularly in AI, logs, and OpenTelemetry, which are expected to have a significant impact on future growth. The company believes that making logs more economical to scale and adding sophisticated functionalities will open up new opportunities. ,
- Continued positive usage trends: Datadog is seeing continued positive usage trends, with higher usage growth compared to the comparable period last year. This momentum has continued into July and August, indicating strong demand for Datadog's services. ,
- Bookings growth in the first half of the year has been flat year-over-year, with duration increasing, marking the lowest bookings growth in any first half of the company's history. This could indicate slowing demand or challenges in securing new contracts.
- Sequential revenue growth in Q2 was lower than last year, marking the lowest Q2 sequential growth in a long time. This might suggest slowing growth momentum for Datadog.
- Net Revenue Retention (NRR) rate is in the mid-110% range, lower than previous levels above 120%, indicating reduced expansion within existing customers.
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Usage Trends
Q: How are usage trends between enterprise and SMB?
A: We experienced strength in our enterprise segment and stability in our SMB segment, continuing throughout the quarter. Recent trends are similar to what we saw in Q2 and the first half of the year, with a continuation of higher usage growth than in the comparable period last year. Usage growth is stronger in enterprise and larger users, stable in SMB. We see higher growth from AI natives and traditional enterprises, but stable growth—not accelerating—from the rest of the pack. -
M&A Strategy
Q: Has your M&A strategy shifted toward larger deals?
A: No, there's no change to our M&A strategy. We focus on building a consolidator platform, integrating many use cases into one shared platform. We cast a wide net in M&A, looking at both small and big deals, but expect bigger deals to be fewer and far between, with a very high bar. Currently, we're not looking into anything that would be very material to the business. -
AI and LLM Observability
Q: How does AI adoption impact your business?
A: The market is still early, but customers are increasingly moving into production with AI models. We have early customers using our LLM Observability, and expect demand to grow as AI natives expand. When customers integrate LLMs into applications, they need observability covering all components, making our integrated platform a no-brainer. -
Gross Margins
Q: Are new products affecting gross margins?
A: There's nothing significant to read into small movements in gross margin from a product mix perspective. Variability is due to launching and optimizing new features, which may initially have more computing or storage impact. We expect ebbs and flows in gross margins as we ship new features and optimize them. Overall, we feel good about margins and have levers to improve them if needed. -
Competition
Q: How is competition evolving in observability?
A: Competition remains largely unchanged. Some scaled players are disappearing due to transactions, but this will play out in the midterm. We still face scaled competition from public companies, but we're performing well, with large deals including displacements or wins against them. At the low end, a rotating cast of subscale companies, but no significant changes. -
Demand Environment
Q: How is cloud optimization affecting usage trends?
A: The peak of optimization was in Q2/Q3 last year; since then, we've seen higher usage growth month-to-month into July. Usage growth is stronger in enterprise and larger users, stable in SMB. Digital natives, largely SMB and mid-market, show stable growth. -
Net Retention Rate
Q: What needs to happen to raise NRR above 120%?
A: We don't provide forecasts on net retention rate. The components are usage of existing products and cross-sell, both stronger in the first half of this year than last year. We'll see what happens, but we don't give guidance on NRR. -
Crowdstrike Outage Impact
Q: How did the Crowdstrike outage impact you?
A: The Crowdstrike incident was very visible, but in observability, it's unremarkable. Such incidents happen daily, and we help customers prevent and remediate them quickly. We assisted customers to come back online and debug; this is what we do every day. -
Security Offerings
Q: How do customers use your data security offering?
A: We've been doing data security for a while, starting with sensitive data scanning in logging. Customers wanted to see where data was exposed at rest, so we extended into data security. Customers approach from both security and observability sides, aligning with our strategy of integrating observability and security into one platform. -
Bookings and RPO Trends
Q: Any color on bookings growth and momentum?
A: Over the latest 12 months, bookings trends converge with revenues. Variations are due to timing of bills and deals being multiyear or single year. Metrics balance back to revenue and ARR; nothing significant to report.