10-QPeriod: Q2 FY2021

Datadog, Inc. Quarterly Report for Q2 Ended Jun 30, 2021

Filed August 6, 2021For Securities:DDOG

Summary

Datadog, Inc. reported strong revenue growth in the second quarter and first half of 2021, demonstrating continued demand for its observability platform. Revenue increased by 67% year-over-year for the quarter to $233.5 million and by 59% for the first half to $432.1 million. This growth was driven by both new customer acquisition and, significantly, expansion within the existing customer base, evidenced by a dollar-based net retention rate above 130% and a growing number of customers with Annual Recurring Revenue (ARR) of $100,000 or more. Despite revenue growth, the company experienced a net loss of $9.4 million for the quarter and a $22.4 million net loss for the first half, compared to a net income of $0.3 million and $6.8 million in the prior year periods, respectively. This shift is largely due to significant investments in Research and Development (R&D) and Sales & Marketing, with R&D expenses nearly doubling year-over-year for both periods, reflecting the company's commitment to innovation and platform expansion. While gross margin saw a slight decrease due to increased cloud infrastructure costs, the company maintained robust operating cash flow of $103.4 million for the first half, indicating healthy underlying business operations.

Financial Highlights

50 data points
Beta

Revenue

$233.55M

75.6% Gross Margin

Net Income

-$9.36M

-4.0% Net Margin

EPS (Diluted)

$-0.03

Total Assets

$2.08B

Cash & Equivalents

$247.44M

Free Cash Flow

$48.49M

Financial Statements
Beta
Revenue$233.55M
Cost of Revenue$57.10M
Gross Profit$176.45M
R&D Expenses$94.78M
Operating Expenses$186.34M
Operating Income-$9.89M
Interest Expense$5.06M
Net Income-$9.36M
EPS (Basic)$-0.03
EPS (Diluted)$-0.03
Shares Outstanding (Basic)308.02M
Shares Outstanding (Diluted)308.02M

Key Highlights

  • 1Revenue grew significantly: 67% YoY for Q2 2021 ($233.5M) and 59% YoY for H1 2021 ($432.1M).
  • 2Strong customer expansion: Dollar-based net retention rate remained above 130%, and the number of customers with ARR >= $100K increased by 59% YoY.
  • 3Significant investment in growth: R&D expenses nearly doubled YoY for both the quarter and the first half of 2021, signaling a focus on innovation and platform development.
  • 4Net loss incurred: The company reported a net loss of $9.4 million for Q2 2021 and $22.4 million for H1 2021, contrasting with net income in the prior year periods, due to increased operating expenses.
  • 5Healthy operating cash flow: Generated $103.4 million in operating cash flow for the first six months of 2021, a substantial increase from $49.0 million in the prior year.
  • 6Strategic acquisitions: Completed two acquisitions in early 2021, adding $241.3 million in goodwill, to enhance its security and observability offerings.
  • 7Substantial cash and marketable securities: The company ended the period with $247.4 million in cash and $1,162.7 million in marketable securities, indicating strong liquidity.

Frequently Asked Questions

Datadog generates revenue primarily from subscriptions to its cloud-based monitoring and analytics platform. Subscription agreements are typically monthly or annual. Revenue is recognized ratably over the term of the subscription agreement, generally starting from when the platform becomes available to the customer. For usage-based subscriptions or usage exceeding committed amounts, revenue is recognized as the product is used.

The shift from net income to net loss is primarily due to increased operating expenses, particularly in Research and Development (R&D) and Sales and Marketing. R&D expenses nearly doubled year-over-year for both the quarter and the first half of 2021, reflecting significant investments in platform innovation and expansion. While revenue grew substantially, these increased operating costs outpaced revenue growth in absolute terms during these periods.

A dollar-based net retention rate above 130% is a strong indicator that Datadog is successfully expanding its revenue from its existing customer base. It means that for every dollar of revenue from customers 12 months ago, the company is now generating $1.30 from those same customers, factoring in both expansion (upsells, cross-sells) and contraction/churn. This highlights the effectiveness of Datadog's land-and-expand strategy and customer stickiness.

In early 2021, Datadog completed two acquisitions. These acquisitions resulted in the recognition of significant goodwill ($207.1 million from one acquisition and $34.3 million from another) and intangible assets on the balance sheet. The goodwill primarily reflects the expected synergies and strategic value derived from enhancing the company's security and observability tools.