Download now: The Downfall of Cable, and the Rise of 5G!

Datadog Soared 49% on its IPO

Written by Monica Savaglia
Posted September 24, 2019

When it comes to initial public offerings (IPOs), the media usually shows you those very popular companies that have a lot of hype already around them.

The media isn’t going to share too much with you about those stronger and better-valued companies because that would require effort and additional research. 

So naturally, those stronger and better-valued companies don’t get the media coverage they deserve, but that’s probably better for you. After all, you're subscribed to Wealth Daily, and you get that type of information delivered to your inbox every day. You can expect the coverage on those under-the-radar companies because that’s what we do best here. 

With that being said, today I want to talk to you about a data analytics company, Datadog (NASDAQ: DDOG).

Datadog is a cloud software-as-a-service company that provides a platform that assists a company’s developers and operations team to see their entire infrastructure — like their cloud, servers, apps, services, metrics, and more — all in one convenient place.

Datadog was founded in 2010 and is headquartered in New York City. It's somewhat unusual for a tech company to be based on the East Coast rather than the West Coast. Datadog did say it was a little difficult to get people on board with the company because of its location, but its location is now more of an advantage. 

Olivier Pomel, Datadog’s co-founder and CEO, has said this about its location:

Initially, when we started fundraising for Datadog, it was really not that easy. We were not based where most of the companies were based, so it was hard to get the trust from investors on the West Coast. And the investors in New York were not really specialized in the type of company we were building. 

What helped the most by being in New York was that we’re a little bit closer to customers — there’s more of them here. And you’re out of the echo chamber in the Silicon Valley so here you can get ahead on what the customers think.

A few years ago, the reception surrounding Datadog consisted of excitement and optimism, and that still remains the same today, but now even more people are on board with the company and rely on its services.

The biggest thing that sets it apart is that it focuses on customer value, which is one of the biggest reasons it started to get money flowing in from investors during its funding rounds. 

The company isn’t just getting the attention of its customers and investors. Datadog was listed as number five in Forbes’ Cloud 100 and was ranked in the top 10 fastest-growing companies in North America on Deloitte’s 2016 Fast 500 list. It was also listed as Business Insider’s “51 Enterprise Startups to Bet Your Career on in 2017.” 

Datadog primarily earns its revenue by selling subscriptions for its platform to customers. It does something unique by giving customers more options when it comes to subscriptions. It offers quarterly, annually, and monthly subscription terms. It does have a strong focus on enterprise customers.

You can find the long list of major companies that are Datadog customers here. In its S-1 filing, it listed more than 8,000 customers.

Now that I’ve briefly talked about what the company has to offer, let’s take a look at Datadog’s IPO last week and its market opportunities. 

Datadog Is Public. Here’s a Look at its IPO...

Datadog was the fourth cloud software company to go public in 2019 and earn a market cap of at least $10 billion. The video-conferencing company Zoom Video (NASDAQ: ZM), chat app Slack (NYSE: WORK), and cybersecurity firm CrowdStrike (NASDAQ: CRWD) are the three others. 

According to Gartner, the global market for public cloud services will climb 17.5% this year to $214 billion. 

So what makes this company so impressive? Well, Datadog reported its retention in its latest quarter of 151%. Its customers are not only sticking around, but they are also increasing how much they spend. For example, a customer who spent $100 the year before would now be spending $151. 

This type of retention is impressing investors because it's showing them that a company like Datadog is extremely efficient with its sales and marketing dollars. Not to mention that the company recently reported a 97% revenue increase to the $198 million made in 2018.

Apparently Cisco approached Datadog a few days before it went public and offered the company $7 billion, but Datadog refused the offer and went public despite the high price tag from Cisco.

Olivier Pomel said he believes Datadog can “grow a lot more as a company.” This is why no matter what the price tag was, Datadog wasn’t on the table to be bought because it's ready to achieve a lot more and grow even larger.

Last Wednesday night, Datadog priced its offer higher than what was initially expected. At first it set a range of $19–$22, but then it increased the range to $24–$26. But even that target wasn’t good enough, and the company and its underwriters decided to go with $27 per share for its offer price. On its first day of trading — Thursday, September 19 — it opened up the market trading at $40.35. 

Pomel said:

We have some good proof points around the product and what we can do. The IPO is not an end in and of itself. We will go to business and really fully chase the opportunity of the massive transformation of companies moving from legacy IT to public and private cloud.

Datadog is a company you’re going to want to pay close attention to in the next few months to see how perceptive the rest of the market is. 

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

Buffett's Envy: 50% Annual Returns, Guaranteed