Datadog Is On An Acquisition Spree

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The recent pandemic has accelerated digital transformation across organizations. Datadog (NASDAQ: DDOG), a provider of essential monitoring and security platform for cloud applications, recently announced its quarterly results that outpaced market expectations. The company has made several acquisitions within the industry to expand its market offerings.

Datadog’s Financials

Revenues for the fourth quarter grew 56% to $177.5 million, ahead of the market’s forecast by 8.9%. Adjusted net income of $0.06 per share also surpassed the market’s expectations of $0.02 per share.

At the end of the quarter, Datadog had 1,253 customers with ARR of $100,000 or more, growing by 46% over the year.

For the first quarter of 2021, Datadog expects revenue between $185-$187 million and non GAAP net income of $0.02-$0.03. It expects to end the year 2021 with revenues of $825-$835 million and an adjusted net income of $0.10-$0.14 per share. The market was looking for revenues of $180.16 million with an EPS of $0.04 per share for Q1 2021 and revenues of $803.83 million with a loss of $0.17 per share for 2021.

Datadog’s Acquisitions

Recently, Datadog announced two acquisitions to expand its market reach. It announced the acquisition of San Francisco-based Sqreen. Founded in 2015 by Jean-Baptiste Aviat and Pierre Betouin, Sqreen democratizes security, making it safer for everyone. Its security tools are modern, effective, and reliable and help automate application protection, threat detection, and security monitoring. Its solutions help make security both simple and accessible by changing the way web applications are secured. Prior to the acquisition, Sqreen had raised $18 million in three rounds of funding from investors including Blossom Capital, Alven, Point Nine, Greylock, Y Combinator, Justin Ziegler, 50 Partners, and Phillippe Plichon. Datadog plans to leverage the acquisition to help its customers to remain secure while using Datadog’s APM or Synthetics.

Last week, it acquired Timber Technologies, the developers of Vector. Vector is a vendor-agnostic and high-performance observability data pipeline that allows customers to collect, enrich, and transform logs and other signals across multiple tools and data sources in both on-premise and cloud environments. It then routes this data to the destination of their choice. Datadog expects this technology to further empower its customers to control their observability data while providing broader points of entry to its platform. Terms of the acquisition were not disclosed. Timber’s co-founder and CEO Zach Sherman and co-founder and CTO Ben Johnson will join Datadog within the product and engineering teams, respectively to deliver this integrated vision.

In the April 2020 Gartner Magic Quadrant for APM, Datadog was ranked as a visionary along with Splunk’s SignalFX. Gartner recognized Datadog for its extensive library of integrations, an impressive pricing model, and delivery capabilities that are focused on the areas that are important for newer architectures. But Datadog faces stiff competition from bigger players like Cisco’s AppDynamics, IBM, and other specialized services like New Relic and Broadcom.

Datadog’s PaaS Strategy

Datadog provides a high volume and a high-speed data processing player, upon which various applications and use cases are being built. Developers can use turn-key integrations that seamlessly aggregate metrics and events across the full DevOps stack and improve the overall performance of their applications.

Datadog offers Restful HTTP API access to developers to bring observability to their apps and infrastructure. It also operates a partner program, the Datadog Partner Network (DPN) that is designated for resellers, managed services providers, consultants and systems integrators, technology partners, and non-transacting referral partners. Members of the DPN have the ability to sell their own apps on the Datadog Marketplace.

Datadog Marketplace was released last year, and is a one-stop-shop where developers can trade their third-party applications with other Datadog users. The Marketplace allows Datadog partners to increase the scope of their monitoring practices and build new tools on the Datadog platform, while expanding awareness of their brand. Datadog does not disclose detailed metrics on how the marketplace is performing.

Datadog’s stock is currently trading at $103.08 with a market cap of $31.4 billion. It hit a 52-week high of $119.43 earlier this week. It had hit a 52-week low of $28.88 in March last year. It went public in September of 2019 at a list price of $27 and a valuation of $7.8 billion.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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