Datadog, a cloud software provider focused on data analytics and monitoring tools, enjoyed a thriving IPO last Thursday that saw the company’s share prices spike upwards almost immediately. Datadog is the latest software company to enjoy a mammoth valuation above $10 billion, with the subscription software company having demonstrated excellent user retention despite some concerns that it wouldn’t be able to woo over investors.
In spite of criticisms surrounding cloud software providers, Datadog has demonstrated an uncanny ability to wow investors by providing excellent results. Here’s what to know about the company’s recent market debut, and how it intends to leverage its huge valuation going forward.
At this year's inaugural London Quality Growth Investor conference, Denis Callioni, analyst and portfolio manager at European investment group Comgest, highlighted one of the top ideas of the Comgest Europe Growth Fund. According to the speaker, the team managing this fund focus on finding companies that have stainable growth trajectories with a proven track record Read More
Datadog is worth more than $10 billion?
After Datadog (NASDAQ:DDOG) hit the open marketplace, investors immediately indicated that they favored the company. Datadog managed to see a 39 percent surge in stock prices throughout its initial day of trading, surging from an initial price of $27 per share to a whopping $40.50. At the end of its first day of trading, Datadog remained at an impressive $37.55, and had garnered a mammoth valuation of some $10.9 billion for itself. Why are investors so sold on the cloud software provider?
For the most part, it’s because they’re convinced that Datadog’s user retention rate aren’t anything to scoff at. Countless software providers have pointed to their large userbases as a means of establishing their legitimacy and credibility in a competitive marketplace, yet investors have since come to learn that having a huge userbase means little if you can’t incentivize those users to stick around for the long-haul. Datadog appears to have learned from other software providers who have come and gone and has invested serious effort in maintaining and bolstering its userbase as a means of wooing investors.
Datadog’s work has clearly been paying off; the company saw revenue jump upwards by 79 percent in the first six months of 2019, according to an S-1 filing made with the SEC ahead of its market debut, for a total of $153.4 million. Nevertheless, Datadog isn’t yet profitable, and posted net losses in the first half of the year totaling around $13.4 million. Still, if investors can be convinced that the company’s robust growth rate can be maintained without sacrificing user retention rates, they’ll likely continue to provide Datadog with all the cash it needs until it can reach profitability.
One of the reasons that Datadog likely enjoyed such a mammoth valuation is that investors were given a reliable floor valuation for Datadog by Cisco after the latter tried (and failed) to acquire the former in the runup to its IPO.
Cisco was hungry for Datadog
Doubtlessly one of the reasons that Datadog jumped upwards so much was that Cisco was interested in purchasing the company in the runup to its market debut. Initial news reports indicate that Cisco was prepared to offer in excess of $7 billion for Datadog just a few weeks ago, demonstrating that market actors are beginning to take serious the software provider that’s managed to give the likes of Microsoft and Amazon a run for their money. Now that Datadog has managed to pawn off 24 million shares to investors for more than $10 billion rather than take Cisco’s bait, investors may give great credit to its executive team as they mull future investment decisions.
Multicloud analysis, which has powered many web hosting platforms, is also set to become more and more important as time goes on, it’s also likely that investors are waking up to the fact that Datadog is perched to help pioneer an ever-growing sector of the market that likely won’t lose its luster for years if not decades to come. Given that the company demonstrated year-over-year revenue growth of 97 percent between 2017 and 2018, Datadog also has hard data to back up its rhetorical claims that the company is poised to prey upon a developing market for the foreseeable future.
Those investors who are interested in the fine details driving Datadog’s growth may want to familiarize themselves with the multitude of reasons that are leading enterprises everywhere to adopt a multicloud strategy. Customers are sticking around with the company and spending more and more on their subscriptions as time goes by precisely because software and cloud needs are becoming more essential elements in every economic arena imaginable. With a dollar-based net retention of 146 percent as of June of 2019, Datadog is putting its money where its mouth is and proving that customers who try its digital services end up coming back for more, bringing their wallets and a renewed eagerness to spend with them.
Datadog may be an expensive buy right now, but the company has demonstrated that there’s real potential underlying the investment enthusiasm that’s drove it upwards during its market debut. As long as it can keep retaining customers and convincing them to spend more, Datadog can expect a brilliant future ahead of it in the market.