Strictly Business: Datadog and Cloudflare Pre-Earnings Thoughts

Some things I'll be watching for...

Welcome to another earnings season! Below are some key metrics and narratives I’ll be watching when Datadog and Cloudflare report August 4. Any revenue or guide estimates are based on historical performance. While I’ve tried to be conservative with these numbers and won’t fixate on them, I do believe they are reasonable considering management felt comfortable enough issuing these guides just three months ago. Narrative updates might include continuation of a recent trend or management confirmation a past timeline is still on track. As with guides, I want to stay flexible with what management presents while also holding it accountable to past statements. Hopefully, both companies post positive results. Good luck to all holders.

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DDOG 0.00%↑ – Datadog reports before market open. Giving a slight discount to

Datadog’s usual beat cadence, I’m looking for Q2 revenue of ~$405M with a Q3 guide around $422M. Given the CFO’s recent confidence in DDOG’s revenue mix even with curtailed usage, a significant Q2 miss would be surprising. The wild card is whether management sees enough hints of tightening usage to negatively affect the Q3 guide. Fingers crossed.

Other things I’m seeking include:

• A 20th consecutive quarter of 130%+ NRR.

• The usual steady increase in customers using 2+, 4+, and 6+ modules.

• Net new customers will be more important than total customer growth. We need to remember DDOG canceled roughly 200 Russian and Belarusian customers at the start of this quarter and adjust accordingly.

• I’d expect a sequential dip from last quarter’s record 240 new $100K customers but still hope for solid growth in that cohort.

• Another quarter of solidly double-digit profit and cash flow margins.

• Management comments that committed and recurring business is holding up well enough to alleviate any major concerns about short-term usage contraction.

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NET 0.00%↑ – Cloudflare reports after market close. With a consistent beat history of 4% give or take, I’ve penciled in a 3.3% beat for $235M in revenue and 54% growth. Even with a tightening economy, I’d hope last quarter’s records of 14K new customers and 127% NRR bolster the revenue floor. If those new customers are ramping on schedule and Q3 looks at least some shade of normal, I’d anticipate a guide around $253M at the top end. One thing to note is 47% of NET’s Q1 business came from outside the US, so the recent strength of the US dollar might create some pressure. I’m sure management will comment if it’s material to the quarter or guide.

In addition, I’m hoping for:

• A big enough raise to FY22’s current 46% YoY growth guide to think 50%+ is attainable.

• A repeat or increase of last quarter’s 127% NRR.

• An increase from last Q’s 121 net new $100K customers added.

• A small operating profit rather than management’s guided $1M loss.

• An update that FedRAMP government approvals remain on track.

• Confirmation of a return to positive cash flow in the second half since management has targeted this timeline each of the last two quarters.

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Thanks for reading and feel free to reach out with any questions.