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Datadog, Inc. (NASDAQ:DDOG) The RBC Capital Markets Global TIMT Conference Call November 14, 2023 1:20 PM ET
Company Participants
David Obstler - Chief Financial Officer
Conference Call Participants
Matthew George - RBC
Matthew George
We got a nice size group here. So I will work through some questions, and we’ll certainly allow some time for Q&A. And with a group like this one, we might get a question or two. So we’ll see. Get your questions ready now...
David Obstler
Ask questions.
Matthew George
Yes, please. So yes, queue them up, get them ready, we will get to that eventually. So yes, with us this afternoon slot, we’ve got David Obstler, CFO of Datadog; Yuka Broderick, IR down in front. Thank you, Yuka, for coming as well.
Question-and-Answer Session
Q - Matthew George
So I guess, David, for you, you guys came off really strong. There was a lot of concern [indiscernible]. You guys had really, really nice results. How do you feel about the macro trends you saw? You talked about them kind of post the quarter into October. Maybe bring us through the year because it’s been a little bit of an uneven year. Let’s talk about what you said through October.
David Obstler
Yes. We have a cloud-based consumption model. Our revenues are associated with monitoring cloud workloads, and that means that we’re correlated broadly to the workloads that are through the hyperscalers as well as how clients use the platform and all the tools. And we’ve been for well over a year in a cost management environment, Fed raising rates and things like that. And we’ve been talking for the last year-plus about the word optimization and clients managing their cost structure, not surprising. There was some very caffeinated growth in the period from 2021 into a little bit ‘22. And many of those companies that had – were cloud data and had expanded the most rapidly, have taken a crack at their cost structure. That’s because of the changes in their business. That’s because of all of you people moving from growth at all cost to a balance. It’s going to happen. And so that resulted in some pressure on our existing customers use of the platform.
I think we talked over a year ago about a cohort of cloud-native, rapidly scaled in some affected industries. And that group had moderated their usage. And what we said last quarter was that we started to see signs of some stabilization in that cohort. And in this quarter, we said that happened. So the most intense period of the optimization that we’ve seen to date was in the middle of Q2. And that relieved itself a little bit. And then we said across the whole customer base, there is an overall cost management, so there’s more focus on cost. And while the rest of the customer base, even down into the SMB, and hasn’t been affected as much, there was an overall sort of management reducing the rate of growth of consumption of the platform. So we said on the earnings call that we’re not declaring the end of this period. We think there’ll still be optimization, always is, but that some of the most intense areas had abated and some of them have even begun to grow a little bit. So that’s sort of updating everybody on what we’ve been through.
Matthew George
We, I just – we had a keynote we talked about some of these trends. And I think the term that we talked about at lunch was cloud – being cloud smart. And as you talk to sort of customers, I mean it’s a journey, right? But like, I mean you said like this period of most intense optimization has at least settled out a little bit here. And even when you talk – is there a way to sort of quantitatively think about if I was spending X, now I’m doing this, and like this is the new baseline? Or like is there an opportunity, do you think, for sort of getting smarter even with cloud spend?
David Obstler
Yes. Yes, definitely. And that happens all the time. So this is just – so we’ve said that cloud allows you – one of the benefits of putting your applications on the cloud is that you can control burst-up conversion, you can manage capacity. And it’s much more flexible than a data center model when you’re invested in CapEx or in some ways a same model. And so that’s definitely one of the benefits. We find that our customers are always – were always looking for optimization projects. It’s just that in that period of emphasis on growth, and not on smart cloud, a lot of the world would emphasize speed and putting capacity on and didn’t emphasize what they had done all along, which was optimizing that and looking at, as you say, cloud smart. So the word before that was cloud smart for the most part, and it looks like it’s returning to that. And I think the companies that had put an emphasis on their operations all along were cloud smart.
Matthew George
Yes. Interesting. And you said – so I think you made a comment a second ago, I know you made it on the earnings call, about some of the most heavily impacted customers were actually starting to maybe even do a little bit better and show some like, I don’t know, if you said acceleration, but even better trends there. Maybe talk about – was that because do you think they optimized almost too much and now they’re kind of coming back? Or what was the dynamic there?
David Obstler
Yes, the behavior there evidencing is they rightsized. Many of them – and we talked about signing contracts – our commitments with us and longer term. Many of them found the right equilibrium. One of the great things about our product is it’s sort of a must-have utility. So in – for the vast, vast majority, and you can see it in the gross retentions, it’s not a matter of turning it off, switching, insourcing, it’s a matter of calibrating the cost. And so we saw that activity, and then we saw a period of more commitment in there. And then I think we said, we saw some modest growth in that group. So we don’t know. We don’t know what’s going to happen next. But that likely means that for this cohort, which is the most impacted, the weight down the decal and maybe even to cutting their costs probably is easing.
Matthew George
Even one of the things that we look at for you guys and other consumption model, everybody – we’re on the edge of our chairs on AWS, Azure, GCP prints. When you look at your numbers internally versus what those guys say and how correlated is – what kind of a correlation do you see? Like others, are you surprised when, I don’t know, pick GCP – pick a hyperscaler – when they say they’re sort of like more positive or sort of more negative comments or is [indiscernible]
David Obstler
Well, I would say, we’re correlated long-term because we’re correlated to cloud work. That’s okay. And we’re correlated to modern DevOps and cloud workloads. So lift and shift, picking monolithic legacy applications. Lifting isn’t a Datadog – isn’t what Datadog does. So I would make 3 comments. One, long-term, we’re correlated; two, the cloud – the hyperscalers have a much broader business than these modern workloads and most likely, AWS has more of their business in these type of workloads. And when you see some others and they announce it, they say there are lots of other things in here. There’s Microsoft Office, there’s G-Suite, etcetera. And we’re not correlated to that. So I think it’s not perfect. It’s directional. And then the other thing is it’s not timed perfectly because the vast majority of the expense is in the cloud, it’s many times. And what they do on their monitoring and the other parts of it that aren’t host-based pricing can have different timing. So directionally in long-term, it is correlated. And I know all of yous are trying to get daily correlation, and it’s not going to be that perfect because the cloud providers don’t give you the numbers and be able to do that. And it’s not a one-for-one minute correlation.
Matthew George
Excellent.
David Obstler
Datadog, Inc. (NASDAQ:DDOG) The RBC Capital Markets Global TIMT Conference Call November 14, 2023 1:20 PM ET
Company Participants
David Obstler - 首席财务官
Conference Call Participants
Matthew George - RBC
Matthew George
我们这里有一个相当大的团队。所以我会依次提出一些问题，当然也会留一些时间进行问答。考虑到我们这样一个大团队，或许会有一两个问题。让我们拭目以待。现在准备好你们的问题...
David Obstler
Sure, feel free to ask any questions you have and I'll do my best to help you!
Matthew George
是的，请。是的，排队准备好，我们最终会处理这些。是的，在今天下午的时间段，我们有Datadog的首席财务官David Obstler；还有IR的Yuka Broderick，前面坐着。谢谢你也来了，Yuka。
Question-and-Answer Session
Q - Matthew George
我猜，对你们来说，大卫，你们表现得非常强势。有很多担忧（无法辨认）。你们取得了非常非常好的结果。你对你看到的宏观趋势有什么感觉？你在季度结束后和十月份进行了谈论。也让我们回顾一下全年情况，因为今年有点不太平稳。让我们谈一谈你在十月份之前所说的话。
David Obstler
是的。我们有一种基于云的消费模式。我们的收入与监控云工作负载相关联，这意味着我们与超级规模操作者广泛相关，并且与客户如何使用平台和所有工具相关联。一个多年来，我们一直处于成本管理环境中，联邦加息等因素也给我们带来了一定影响。在过去一年多的时间里，我们一直在谈论优化这个词和客户管理他们的成本结构，这并不奇怪。从 2021 年到 2022 年初，期间出现了一些非常快速的增长。那些在云数据方面扩张最迅速的许多公司都开始审视他们的成本结构。这是由于他们业务的变化所致，也是因为大家从只追求增长到追求平衡。这是一种必然。所以，这导致我们现有客户对平台的使用产生了一些压力。
我记得我们在一年多前谈过一个关于云原生、快速扩张的相关行业的群体。那个群体已经适度减少了他们的使用。上个季度我们谈到，我们开始看到一些稳定的迹象。而在这个季度，我们说稳定已经出现。到目前为止，我们见过的最集中的优化期发生在Q2中期。这种情况稍稍缓解了。我们也说，整个客户群体都在进行整体成本管理，所以更加关注成本。虽然其他客户群体，甚至包括中小型企业，没有受到太大影响，但整体上都在减缓平台使用量的增长速度。我们在财报电话会议上提到，我们并没有宣布这一时期的结束。我们认为优化仍将继续，但如今一些最集中的领域已经开始减轻，甚至有些已经开始略微增长。这就是我们所经历的情况的更新。
Matthew George
我们在一次主题演讲中谈到了一些这些趋势。我认为我们在午餐时谈到的术语是云- 云智能。当你与客户交谈时，我觉得这是一个旅程，对吧？但像你所说的，最集中的优化期至少在这里有所缓和。即使在谈到- 有没有一种方法可以从定量上来思考，比如我过去花了 X，现在我做了这个，这是新的基准？或者说，你认为在云支出方面有可能变得更智能吗？
David Obstler
是的。是的，肯定的。这种情况经常发生。所以我们已经说过，云允许您将应用程序放在云端的一个好处是您可以控制爆发式增长，可以管理容量。与数据中心模型相比，它更灵活，因为您可以投资于资本支出或以某种类似的模式进行投资。这绝对是其中的一个好处。我们发现我们的客户总是寻求优化项目。只是在那个强调增长而不是智能云的时期，世界很多地方会强调速度，并不强调一直以来他们做的事情，也就是优化和云智能。所以之前的关键词是云智能，看起来它正在回归到这一点。我认为一直强调了他们的运营的公司是云智能的。
Matthew George
是的，有趣。你说过，我记得你在收益电话会议上提到过，一些受影响最严重的客户实际上开始表现得更好，甚至显示出一些，我不知道能否称之为加速，但在那方面表现得更好。也许可以谈谈——你认为这是因为他们进行了过度优化，现在又恢复了吗？或者那里的动态是什么？
David Obstler
是的，他们的行为表明他们在调整权力规模。我们谈到签订合同时，很多人与我们有着更长期的承诺。很多人找到了合适的平衡点。我们产品的一个重要之处就是它是一种必备的公共设施。所以对于绝大多数人来说，你可以从总保留率中看出来，问题并不在于关闭它、转而使用内部资源，而是在于调整成本。我们看到了这种活动，然后我们看到了一段更多的承诺的时间。然后我想说，我们看到这一组中有一些温和的增长。我们不知道接下来会发生什么。但这可能意味着对于受影响最严重的这个群体来说，他们承受成本的负担正在减轻。
Matthew George
即使是我们在你们和其他消费模式方面的关注点之一，每个人都对AWS、Azure、GCP的变化都十分关注。当你们内部的数据与这些公司宣布的数据相比时，它们之间存在怎样的相关性？你们是否会对他们中的某个——比如GCP——更积极或更消极的评论感到惊讶？
David Obstler
嗯，我想说，我们从长远来看存在相关性，因为我们与云工作有关。这没关系。而且我们与现代DevOps和云工作负载有关。因此，举起和转移，选择单片遗留应用程序是不是 Datadog 做的事情。所以我会发表3点看法。一，从长远来看，我们是有相关性的；二，云计算 - 超大规模云服务提供商拥有比这些现代工作负载更宽泛的业务，很可能，AWS 在这种类型的工作负荷中拥有更多的业务。当你看到一些其他供应商宣布的时候，他们会说这里面还有很多其他的东西。有 Microsoft Office，有 G-Suite，等等。而我们与此并无关联。所以我认为这并不完美。它是朝着某个方向的。还有一件事是，它的时机不够完美，因为云计算中绝大部分的支出需要很长时间。以及他们在监控和其他部分不是基于主机定价可以有不同的时机。所以从长远来看，它在方向上是有相关性的。我知道你们都在努力获取每日的相关性，但是这并不会那么完美，因为云服务提供商并不会提供给你数字和能够做到这一点。而且它不是一对一的分钟相关性。
Matthew George
太好了。
David Obstler
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