Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Datadog (DDOG) make money in the Cloud?

Datadog (DDOG) is a fast-growing software-as-a-service company that could make money in the cloud.

Stockrow estimates Datadog’s revenues grew by 82.84% in the quarter ending on 31 March 2022. Impressively, Stockrow credits Datadog with seven straight quarters of revenue growth between September 2020 and March 2022.

For example, Datadog’s revenues grew by 83.74% in the quarter ending on 31 December 2021 and 74.88% in the quarter ending on 30 September 2021. Consequently, Datadog’s quarterly revenues grew from $136.68 million on 31 December 2020 to $258.84 million on 31 December 2021 to $288.37 million on 31 March 2022.

However, Datadog is not making money from the cloud, it reported five straight quarters of operating losses between 30 September 2020 to 30 September 2021. Datadog Inc. (NASDAQ: DDOG) reported a quarterly operating income of $84.5 million on 31 December 2021 and no quarterly operating income on 31 March 2022.

What is Datadog?

Datadog (NASDAQ: DDOG) sells cloud monitoring and security software as a service. Arrogantly, Datadog claims its software can see inside any stack or app. Additionally, Datadog claims its apps can examine the scale of data.

Datadog’s services include infrastructure monitoring, network performance monitoring, network device monitoring, container monitoring, log management, sensitive data scanners, distributed tracing, continuous profilers, and database monitoring. Datadog security products include a Security Platform, Posture Management, Workload Security, Cloud SIEM (security, information, and event management), and Application Security Monitoring.

The Datadog Digital Experience solutions include Real User Monitoring, Synthetic Monitoring, Session Replay, and Error Tracking. Platform Capabilities of Datadog include Dashboards, Watchdog, Alerts, Incident Management, Integrations, and an API (Application Programming Interface).

How does Datadog Cash in on the Cloud?

Datadog’s apps work with Amazon Web Services (AWS), Microsoft Azure, the Google Cloud Platform, Kubernetes, Red Hat OpenShift and Pivotal Platform. Some uses of Datadog include Cloud Migration, Monitoring Consolidation, DevOps, Shift-Left Testing, Digital Experience Monitoring, Security Analytics, CIS Benchmark Compliance, Hybrid Cloud Monitoring, IoT (Internet of Things) Monitoring, Machine Learning, Real Time BI (Business Intelligence), On-Premises Monitoring and Log Analysis and Correlation.

Customers Datadog serves include government, financial service, manufacturing, logistics, healthcare, life sciences, retail, e-commerce, education, media, entertainment, and gaming organizations.

The Datadog Partner Network provides go-to-market support, sales tools, a partner portal and training and support. The network provides access to Datadog’s platform and all of its SaaS solutions.

Datadog claims its customers include Royal Dutch Shell, Siemens, Amazon subsidiary Whole Foods, Samsung, The Washington Post, Alamo car-rentals, Best Western Hotels, the NASDAQ, Nikon, Deloitte, Maersk, SoFi, Lufthansa, Sotheby’s Twilio, FICO, Conde Nast, PBS, DreamWorks, SONY, Comcast, the Harvard Medical School, Lenovo, Draft Kings, Zillow, and Zendesk.

How Much Money could Datadog make?

Datadog (DDOG) operates in a growing market: cloud services. For example, Statista projects public end-user spending worldwide could grow from $410.92 billion in 2021 to $494.65 billion in 2022 and $599.84 billion in 2023.

In contrast, Grand View Research claims the global cloud computing market could grow to $1.555 trillion by 2030. Grand View Research estimates around 70% of businesses had shifted some operations to the cloud in February 2022.

Gartner claims 51% of enterprise information technology (IT) spending could shift to the cloud by 2025. Additionally, Garnter estimates 65.9% of application software spending could be on cloud technologies in 2025. Gartner also estimates 57.7% of application software spending could go to cloud technologies in 2025.

Finally, Gartner estimates enterprises will spend $1.3 trillion worldwide on the cloud in 2022 and that global cloud spending could grow to $1.8 trillion in 2025.

Is Datadog (DDOG) making money?

Datadog (DDOG) is making some more money from the cloud. For example, Datadog’s quarterly operating cash flow grew from $51.65 million in March 2021 to $147.39 million in March 2022.

However, Datadog’s quarterly ending cash flow fell from $373.32 million on 31 March 2021 to -$16.07 million on 31 December 2021. Datadog reported no quarterly ending cash flow on 31 March 2022.

Datadog is borrowing money. For example, Datadog reported a $12.68 million quarterly financing cash flow on 30 June 2021 and a $4.24 million quarterly 31 March 2022. Datadog’s total debt grew from $797 million on 31 March 2021 to $808 million on 31 March 2022.

What Value does DataDog have?

Datadog (NASDAQ: DDOG) has growing value. For example, Datadog’s cash and short-term investments grew from $1.548 billion on 31 March 2021 to $1.671 billion on 31 March 2022.

In contrast, Datadog’s total assets grew from $1.952 billion on 31 March 2021 to $2.529 billion on 31 March 2022. Datadog’s value is growing, but I think Mr. Market overpriced Datadog at $97.87 on 11 May 2022. Datadog’s share price grew from $78.62 on 11 May 2021.

I consider Datadog a classic overpriced tech stock. This company seems to have an excellent product in a growing market. Yet Mr. Market is paying far too much for this stock.

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