Datadog, Inc. (DDOG) Management Presents at The Needham Big Data and Infrastructure Conference

Datadog, Inc. (NASDAQ:DDOG) The Needham Big Data and Infrastructure Conference November 16, 2022 9:30 AM ET

Company Participants

David Obstler – Chief Financial Officer

Conference Call Participants

Mike Sikos – Needham

Mike Sikos

Alright. Terrific. Thank you for tuning into our fireside chat during Needham’s Tech Week, I’m Mike Sikos covering the Infrastructure and Analytics Software space at Needham. Please to be hosting the CFO, David Obstler from Datadog here today. Just for some quick logistics, I have a list of questions I prepared on my side. But if clients at any point have questions, please submit them, and I’ll be sure to get those in front of David while we have them here.

With that out of the way, David, thank you very much for joining us at our conference that we really do appreciate it.

David Obstler

Thank you for having us. We appreciate it as well.

Question-and-Answer Session

Operator

Q – Mike Sikos

Absolutely. I wanted to jump right into it if we could, I think most people, I would hope are relatively familiar with the Datadog model today. But one of the things that that struck me, I know we’re still earnings is not that far ago even though it feels like it was many months ago at this point. In the current environment though, it feels like Datadog is seeing maybe less pressure on growth versus the earnings principally received out of the hyper scalers. And I’ve — I don’t — I think a decoupling might be a bit extreme, but it does feel at the margin, like, you guys are faring better versus what the hyperscalers are delivering. And I just wanted to see why is that the case today versus maybe where we were during COVID-19 and the pandemic. It — what’s the difference? Or what’s taking place under the hood that’s causing that at the margin again?

David Obstler

Yes. I agree it. Also at the margin and it, you know, it’s too early to know how all of this is going to pan out, but I think there’s a couple of things that are potentially worth pointing out. One is, I think we’re indexed to the highest growth segment of cloud workloads in the cloud numbers are a lot of different use cases, and our use cases — use case is a DevOps modern development, monitoring of client facing applications in real time. And when I say that, I mean, that’s the business, so that’s the way, at least in that part of the business, the clients delivering their product to their clients. And so it’s high priority. I think that’s manifested in the gross retention rates that have been quite high. And in terms of we’re probably more index to the movement of critical applications to the cloud than the weighted average hyperscalers. That’s one thing.

The second would be that our platform has expanded quite a bit in the years since we it seems like a long time ago, but I guess it’s 2.5 years ago, since the beginning of COVID where we had, as you know, started with infrastructure, had expanded. But now we have, you know, expanded the SKUs, we have very strong penetration of the platform, adoption of logs, APM, synthetics, RAM, some of the newer products. So that provides probably some cushion against a cloud optimization or host optimization, and also provides a diversification of the way the clients can use the platform, so that as they’re looking at using the various pieces, they can move from one to the other in a frictionless way and that may also may also provide some protection. Again, caution is still too early to see how all this plays out, but those are some of our observations.

Mike Sikos

Right. I appreciate you calling that out. Like, one of the things that we’ve highlighted to our clients, but the idea that Datadog really — over the long-term looks at R&D is, like, this source of strategic differentiation. And so I’m happy that you’re calling out, let’s say, this platform expansion.

David Obstler

Yes.

Mike Sikos

Maybe let’s focus on infrastructure and more geared towards some of these newer areas like logs, APM, Synthetic, RAM focused on those mission critical workloads that we’re talking about as well. I did want to also talk about those more, I guess, critical workloads again. Is it fair to think that maybe some of that insulation from the broader headwinds that the hyperscalers are facing. Like, the cloud opportunity is so large, and correct me if I’m wrong, but I don’t want to mischaracterize it. I think about the investment in observability is almost like a second decision. So if I’ve moved — a workload to the cloud, I’m only investing in observability behind that. And so again, because you have this large greenfield opportunity to attack, that should also provide a little bit more of a sticking point for your durable growth over the longer term?

David Obstler

Yes, I think we have the — that’s sort of at the very core of the anchor, so that type of migration. We also have a couple other things we have, the platform itself. So, essentially, when over time, when a client does land and it does and we give statistics on this, and it does expand. That provides a growth driver as I think you might call it consolidation. We would call it better use of the platform, so that’s one.

And we’ve also expanded over time sort of the use cases. And we also see growth of the DevOps function. Security is a perfect example in dev SecOps, we can talk about at some point where the — our customer base has more needs over time as they — as the world is seeing that the monitoring in real time of the application is quite critical, and there’s more than monitoring the infrastructure as we’ve all learned in order to do this well.

Mike Sikos

That’s great. And just while we’re on the topic, I had it buried in the questions at the end. But you had mentioned dev SecOps, right?

David Obstler

Yes.

Mike Sikos

So I know that security is something that the Datadog is spoken to as well. Can you help us think about the pulling in? And I just want to set the tone here. Like, when I think about DevOps, we’ve been talking about that since I want to say that the term was first coined in, like, 2008, 2009. And that still seems like it’s very early in the adoption of dev ops. And now we’ve been talking about dev SecOps since maybe 2014, 2015. It feels even earlier, but it does feel like it’s being incorporated in [indiscernible]? So maybe what are you seeing on your customer’s behalf as far as their integration of this workflow and adoption and movement towards a broader dev SecOps culture or mentality?

David Obstler

Yes. I think you stated it very well. It’s a good analogy to DevOps when you think about the way software development was done in waterfall, et cetera. And as you got towards containerization and the speed of it, you couldn’t do that anymore and you had to go towards, you know, more real time development, deployment of software. And so I think you’re on a similar — we think you’re on a similar journey and security, meaning that it makes a lot of sense that the earlier you push security factors into the development and deployment and productions. The more secure the environment is the more proactive it is, and it’s very similar to the other signals that we are, you know, providing. We didn’t invent this. We got this from our customers, who are demanding this.

And so we do — we said we’ve had very good traction. It’s early days, but we’ve had that group that’s progressive and is using security in DevOps. Pull it through, we are still early in just like in APM, we’re still early in the — we weren’t in APM, we’re still early in development of this product, so there’s a couple things going on. The building of it that we’re doing and putting it out there and testing functionality, and we’re kind of midstream on that. And then as you rightly said, the adoption of security practices in DevOps, which we’re seeing trends of, still early, but we’re seeing good signals.

And what that means is there’s a possibility and a likelihood that security could be adopted the same way that our other tools have been adopted, which is bottoms up real time, distributed, democratized. We don’t know and we said we don’t know what the influence of the [CECL] (ph) will be in this frictionless adoption. And we’re open to influencing whatever way it happens. But we see some good early signs that there could be routes taking hold and that this could, you know, be a long-term positive accelerating trend.

Mike Sikos

Awesome. Awesome. And there was another comment, I guess, independent of this or separately on the earnings call, which spoke to the growth across products being more homogeneous during Q3. And I just wanted to make sure, I fully understood the comment, but can you provide a flavor for why were you seeing? Is it is it more a function of customers are adopting Datadog as this platform rather than maybe a specific product and that’s what’s causing this homogeneous impact or any color there would be incremental?

David Obstler

A couple of things. One, first of all, I think what we said where it was, we said that the adopt, the rationalization was concentrated, not to say everyone doesn’t watch costs, both concentrated in the cloud native, fully scaled. And then in certain sectors, we can get into this. And we said an example was and I know you have a question on this was consumer discretionary. So — and we also saw on the other hand, we saw new workloads, whether they were created in the quarter, new customers or customers, who had adopted Datadog in previous quarters, we saw them continue to ramp quite significantly. And so that led us to the conclusion that the pushing — putting a priority workloads hasn’t stopped. It’s still a big focus. And but if you’ve done it, and you are using more pieces of the platform and you’re more fully scaled, you might have the opportunity to rationalize.

Now, how has that done? Yes, I think you said it quite well. We have a platform and our clients buy credits or capacity and they can move around within the platform on what they spend. And I don’t think we’re seeing that most customers are reducing their spend that they’re slowing down their expansion. And so they can do that in a number of ways. They can do that by changing the dolls on logs. We pointed that out last time. They can do that in terms of, you know, what data they store, and they can also do that in the rate of growth of host count of what some of our products are based on.

And what we saw was — we saw a little a little bit more towards they’re doing that not as focused on the sort of the logs, and we said a log like part of APM, but they’re doing that not as intensely there, because that was probably the lowest hanging fruit to look at first for the most affected customers. But they’re watching it, you know, in the platform use. So we saw a little bit of that in Infra and nothing significant, and we just pointed that out, because on the previous call, we had said sort of the easiest parts of it in some of the logs and one part of APM had been the focus in that quarter.

Mike Sikos

Great. Great color there. And I did — this is, again, for my own understanding, but, like, if I go back two quarters ago, we did cite more specific impact on maybe logs or some of the components within that ATM suite? Why is that considered or viewed as maybe an easier area to optimize or lower hanging fruit as an example, right? Why optimize there first? Is it just easier to modulate that? Or any color?

David Obstler

I wouldn’t — I didn’t — don’t I say, if you look at the logs growth and the piece of it in the platform and how logs is used to investigate problems, in no way doesn’t mean that it’s a less important product or that and we don’t have our gross retention rate there isn’t changed. But what it is that since we’re distributed and we’re used by lots of DevOps, we don’t charge by seed. It can be used and it — so it can be used in ways that can be modulated in logs that where you set maybe the retention policy a little more conservatively or liberally, what have you call or you put out the directive that you — that watch the amount you’re in the indexing, because this is part of everyone’s days of production.

And that doesn’t mean that, that and that’s what happens all the time. Meaning, that’s how clients use our platform. They do a lot of development, they and this is not related to COVID or related to the best of times or related to where we are now. This is that clients use the platform and then they look at use. In fact, we help them look at use. We show them use. We don’t want them overusing the platform. We are land and expand, so we’re not a sort of a shelfware company. Most of our clients are short and they buy along the way that removes a lot of the friction. Our clients like it very much. So we help them to say, oh, looks like you might have spiked here. And then, you know, see what to — maybe you have the setting around. So that I think is one of the more attainable things to do when you first start looking at this cross line.

Mike Sikos

Right, right. And if I jump back up to maybe some of the growth components, but maybe from a from a customer level, right? One of the things that I look at is, let’s say, the new customer acquisition machine that you guys have, are there pockets within the opportunity that Datadog is addressing where maybe it’s easier to land new customers by vertical or specific product today versus maybe where we were 12-months ago? Like, has — have you guys noticed a change in maybe ROI or what resonates as far as attracting that, that first purchase by a new customer in today’s environment?

David Obstler

Broadly, it’s quite some of it. We do have some changes in that. We have advanced the government part of the business by getting our medium compliance we have HIPPA. So there — when you talk about sectors and industries, you do have some several things. But, no, I think that it’s that the development of the product and the leadership, as you said from R&D, has continued to make us a compelling call as cloud workloads are migrated. And it continues, we have over time, I think, had a broad name from the cloud natives. And this is not just now. This is over the last four or five years to many other sectors, financial services, industrial products, automobile, air transportation where you see traditional enterprises.

And if you look back through our transcripts, we’re going through a lot of those cases all the time to illustrate this. This is not something that’s changed in the last quarter. This is something that’s been going on for a number of years, and we see it continuing. We think we’re really early on in the traditional enterprise’s adoption. And so we see and this may be one of the things that’s keeping the momentum going in new logos, because we do have a very strong enterprise pipeline and mid-market is that we’re very early. So these are priority projects and they’ve been invested in and are continuing.

It’s too early to tell. We may have — we do sell both in terms of the efficacy of the platform in short name remediation time and keeping critical revenue producing applications up. But we also sell on the basis of it’s cheaper and better quality to buy our platform than to do it yourself and do open source. And as IT hiring or IT headcount gets challenged, it may be we see, you know, some of this, we seen a little bit of it. It’s too early to tell them we’ll keep everybody informed if this becomes an accelerated trend. We think it’s rational, that it’s more efficient to buy the platform than to have the IT department. And we’re not in that end of their ability create another observability prop platform out of the components, but we understand the logic of that, and we’ll have to see how that pans out.

Mike Sikos

Great, great. And I know that you had touched on it briefly there in the comments, but, like, when we think about you guys versus maybe the DIY or the open source. A lot is made of competition in this market. And I just wanted to see — can you put some better guardrails around that, like how much of the market are you or how many new customers are coming to you that are maybe coming from that DIY or open source background versus more competitive, either I’m going to stand up Datadog next to this other tool that I already had from a third-party vendor or maybe a rip and replace? Like, how do we frame that that greenfield versus brownfield with the new customers you’re attracting?

David Obstler

I think it, you know, it’s not a rip and replace, we don’t really, you know, go for that. We do have momentum that comes more naturally to the platform once we land and are used as contracts are up. But I think if you want to combine open source and piecing together various components, like using componentry. I think that’s what you would have in situations that are — that would be the more common decision than ripping out, you know, a platform competitor. So we have that. So I think most of they — as clients are getting more intense in moving workloads, they tend to evolve in the sophistication of what they’re doing. And we do have — and this has been going on for a long time. The momentum of, you know, I tried, you know, the cloud native product or I tried this, that. I see the benefit of the platform, so I’m going to move towards this over time. So that’s one of the emphasis of buying Datadog and has been for quite some time.

Mike Sikos

Great, great. And I know new logo ARR growth was strong on this most recent quarter. And I think you guys had cited it coming from new customers and existing customers. I’d be curious though, is Datadog in any way prioritizing the growth from existing customers? And the reason that I’ll let you know why I’m going with this or where I’m going with this. But the idea that maybe mining existing customers in the current environment is easier than landing that next new customer just given those existing customers have already seen the benefits of the Datadog platform. They recognize the ROI that you guys are bringing to bear. So I wanted to see, has there been any tactical shifts within Datadog as far as how you’re going out and either landing new customers or mining those existing customers?

David Obstler

No. Other than increased investments, so we have a number of different salesforce and they tend to have different focus. We have a Insight Commercial, which is a 100% focused on new logos. That’s all they do. And so their SMB and then we have a CS or a team that focuses on upselling them, and growing the relationship product and otherwise in the SMB and may — and somewhat in mid market. And we have a enterprise and then sales team that is segmented. We have majors or large existing customers where with their goal might be penetrating it growing and penetrating additional divisions.

And we have other territories that are more no new logo oriented, every dollar is treated the same. And so when we expect depending upon what error you’re in, if you’re in the commercial sales, you’re not focused on growing customers as much. It’s a new logo. It’s a hunter group. If you’re in, it depends what areas of mid-market and enterprise. So, no, I would say that given what we’re saying, which is that cloud projects are of high priority and we’ll be continuing, the new logos are the growth engine for the future. They don’t really affect the next quarter. And so we’re putting significant priority on that. I think, if anything, over the years, we have gotten better at this segmentation about committing resources in different ways and in, you know, and focusing on each them in the right way.

Mike Sikos

Great. And I know that you had touched on this earlier or I think it was the illusion to it. But the idea that in this environment, customers might be more willing to — I guess standardize their observability to a platform, right? And so I know it’s early, but is it fair to think that maybe if customers are already using you guys for infrastructure, they want to standardize that more broadly and then we’ll incorporate, let’s say, APM with Datadog as well? Any early indications from the market with respect to the tighter budgeting environment room?

David Obstler

That’s been a huge growth driver as you can see in our metrics. If you look at our metrics of two, three, four, five, that’s been a huge growth driver in the company for a number of years. So that’s always been that’s been the case. Meaning if you just look at our metrics on cross-sell and how important that is. And if you go and you talk to clients, you’ll say — they’ll say things like, why would ever have these point solutions when I can everything in a platform where they do it for me and it’s all there? That’s been a huge driver and we expect it to be a continued driver whether it becomes more cute in this environment or not, you know, don’t know, it’s been so — it’s been you look at the graphs that we show, and it’s been there for a long time. So I would say we expect the continuation of that given the evidence we’ve seen, but it’s been going on for quite some time.

Mike Sikos

And maybe another question with, again, those charts and the statistics around multi-module adoption from your existing customers. Is there a way to think about, I guess, at the margin, like, if customers are using two-plus products from Datadog, four plus or six plus, that product adoption, it sounds like at the very least it continues almost unabated, as far as that adoption of your platform. But is there — in any way in it an accelerant versus where we were call it a year ago just, because the platform is widened and not only that, but customers are looking to consolidate the number of vendors they’re working with?

David Obstler

I think they’re looking that could be, I think they’re looking to consolidate and have been the number of vendors. I think you see that in the amount of new sales that we’re doing every quarter versus alternative companies. It’s the platform drive. It’s the fact that we’re a product led company where we essentially have one product, the platform, and the client can go in and use it. And it’s all set up for them. All of that rationale means that, that, you know, has been going on. I think it’s too early to tell whether that’s like, again, we don’t sell rip and replace. We basically present — we basically have a constantly evolving platform that our clients go into, and they adopt this in a pretty frictionless way. So we’re certainly seeing that whether that accelerates or not. It’s too early to tell, but we’ve seen very strong trends in that for quite some time.

Mike Sikos

Great, great. And right alongside that is the gross retention statistics. I know over the last couple of quarters, Datadog well, if I go back a year, I think you guys were actually calling out mid-90s. And for the last couple of quarters, it’s been in this mid to high-90s range now.

David Obstler

It’s the same. It hasn’t moved in. It hasn’t moved, it’s been rock solid where it’s been slightly up, but I would say, mid-90s enterprise high-90s, SMB, you know, low to mid-90s. So it’s been — it’s very, very similar. We have very little churn. It hasn’t moved very much in the amount for through all of this, through COVID. I mean, this support, you know, to any of this, it hasn’t moved. So I think that, broadly speaking, you know, we haven’t put out a number, but we said mid-90s. And if you think of high-90s as 98 or 99 it’s not that it’s mid-90s. And we just say that enterprise is the high side of that SMB would be the lower. But qualify that SMB still is in the 90s.

Mike Sikos

Yes, yes. And I know it again, that consistency and just to echo that, but, like when I think about you guys and this broadening of the platform, I would think that if anything since COVID, again, if we’re trying to draw parallels and put on our head to think about what’s different this time, I would think that given the expansion of your platform probably benefits you guys as far as becoming more of a strategic partner to your existing customers today.

David Obstler

Yes. Definitely, I think, you know, that might manifest itself. It could manifest itself in net retention too, meaning that you — if you want to optimize a product, you — we do this. This is what we do with our clients all the time. We expose them and we say, ah you know, to use your credits, to use what you’ve done, you can do it in so many ways. So I think it could manifest itself not in existing growth, but it could manifest itself in net retention as clients have more opportunity, you know, to use various aspects of the platform.

We think over time — I mean, what’s happened over time is when you think about what the metrics we’ve given on the newer products, and you know, the fact that half of the company or whatever is products that we didn’t have five-years ago, I think that’s testament too, as you said, the R&D product and value of the platform.

Mike Sikos

Great. And cycling back to the verticals, I know and appreciate the color too that consumer discretionary is about a low teens percentage of your ARR as far as exposure, right? Is there — are there other verticals that we should think about for Datadog as far as exposure where we should be mindful of maybe they’re seeing similar trends or headwinds like consumer discretion or other pockets where maybe things are actually better and just kind of home humming along?

David Obstler

Yes, yes. I think that you asked the question. Is consumer discretionary your largest? No, no. Our consumer discretionary, you know, it might be like, I don’t know, 10, 12, it’s you know, it’s one of our — so one thing to think about is we are a mirror for the digital economy. And when I mean the digital economy, I don’t mean the cloud natives. I mean the digital economy, banks giving portals for their customers; automobiles putting intelligence in it; plumbing supply companies distributing their wares online; traditional grocery stores having online ordering. So we reflect that the digital economy. So yes, in places like, I don’t know, electrical utility, we may — that may not be as big as the overall market, but we’re highly diversified.

So we what we were doing and I think is we’re we all we — our strategy has been to point out the areas where maybe pro rata, there may be more of a trend going on. And of course, it makes sense that in the industry’s most affected, pro rata, you would have more of a trend. But we’re really diversified. So one of our large — some of our largest sectors are financial services, media, we talked about travel, it’s not one of our, you know, at the time COVID travels doing really well.

SaaS software, enterprise SaaS software. So, you know, so, yes, I mean, the economy could affect everybody, right? But what we’re pointing out is the areas and it makes sense where there might be more intense effect. But consumer discretion is not one of our largest sectors. It’s one of our many, many sectors that reflects the digital economy.

Mike Sikos

Okay. And just to put a sharper knife to it. But it sounds like, again, it sounds like Datadog went out of its way to attract consumer discretionary. It’s one of the many verticals that you guys are playing in. But, again, you guys have this broad cut versus this digital economy that you’re talking too. And so —

David Obstler

You know, one of the great things about our product is we’re so horizontal. So that’s why if you listen to our earnings calls, shipping companies, insurance, our market is any compan, so it could be the most traditional bound insurance companies headquartered in, you know, Hartford or whatever they are, and the online. All of them because to compete, you generally, increasingly have to have a digital business. They’re all our customers or potential customers. So that’s why we’re so distributed. We said that in the areas where it’s cloud native and they’ve sort of ramped, they’re fully deployed and they’re in an affected sector. That’s where we have the most intense rationalization.

We may well have some rationalization across the whole customer base, and I wouldn’t, you know, but we’re just pointing out where the weighted average, because at COVID, we had everybody doing this optimization at once. So it went to the low-end of the organic growth. And right now, what we said is we’re not at the high-end, we’re in the middle, smack in the middle. And so what that means is that we have a portfolio of customers that are doing different things. Not everyone’s doing the same thing, so we’re trying to illustrate where it’s more intense where customers are doing that rationalization.

Mike Sikos

Great. Thank you for spelling that out. And I know again, I think we started off this fireside, I’ve been talking about how Datadog views R&D is like a area of strategic differentiation. And so if I think about your R&D roadmap, how, like, how does the company maintain its investments in, let’s say, new product launches or I’m sorry, scaling to new product launches, while maintaining its investment in existing products, like how do you guys prioritize that under the hood or within the confines of Datadog? I’d just be curious to hear again how you guys are looking at that R&D roadmap long-term?

David Obstler

Yes, so we essentially, plus or minus 50-50 in the existing platform and expanding the products 50% new, roughly speaking. We have a very large platform investment, there’s so many things in the platform and you saw that in Dash when you think about more automation, more intelligence, workflow processes, something called PowerPacks, which is the automation of creating the dashboards. Online collaboration ITSM, you know, there’s so many things in the platform, which are can — will create greater value, because what’s all based on what our customers are doing.

And then there’s — the new products and the new functionality that we talked about. And so we every — we have a longer term sort of plan. And then every month, we meet in OKRs. And we essentially review the plan, and make sure that we’re hiring to that. And so we refresh that, you know, every quarter as we see success, often we’re launching a product and we’re doing it in the — because we have this frictionless way and our customer seeing the platform. We get a lot of feedback.

And often we put something out there, clients use it, we learn. And there’s, you know, and I think this is one of the great things about Datadog in that we have this automatic feedback loop. And allows us to refine the product, refine the pricing, et cetera. So we’re constantly doing that. You know, I think we said all along, we think there’s a very, very large opportunity and continue cloud workloads in the penetration of more of the full platform within our existing customers. Most of our customers do not use both logs in APM today. You know, it’s got a huge penetration. We have, you know, expanding of the functionality. We have the enriching of the platform, we have the security opportunity, we have the shift left. You know, all of these our growth drivers that we think are exciting opportunities for us all — in the core of the very long opportunity of putting more mission applications in the cloud.

Mike Sikos

And I want to marry that that R&D investment that we’re talking to with the sales and marketing, right? So I know, again, you guys have this frictionless go to market where the customers are using the product getting up the speed, it’s a bottoms up approach, right?

David Obstler

Yes.

Mike Sikos

But how do you ensure as the number of Datadogs or the modules like, purpley can bubble up that your sales and marketing organization is being brought along for that track and then effectively communicating that ROI to maybe their customers’ constituents. Who’s sitting around at that decision making table?

David Obstler

Yes. I think that’s a great question. First of all, one thing is because our greatest salespeople are our customers. And we basically have set this up so they can use it, you know, pretty instantly. Our customers are our greatest salespeople. So they see how things so that’s really good. That really helps. And then we have invested in sales engineers, pre-sales, and some increasing specialization in sales and engineering, so that we have people trained up. We have a very large investment in technical account management and in customer success. We’ve increased our investment in a more dedication.

Meaning, you can have if you have a very large instance or usage, you can have some dedicated resources that can help you use it. And then in product management and product marketing, you know, we’re investing in telling that story. Take security, that means going to security conferences. That means that means getting your word out. So all of this is what we’re doing. So far we have not needed and I know this is a related question to create a specialized salesforce. It’s worked really well for us. Why? Because in the end of day for our clients, as we talked about, we have one product, the platform.

So as long as we have the same buying persona for the most part, using the platform every day this has been working and we don’t have any plans to change it. We said there may be some places where we reach a different persona. That’s not in the platform every day, like it could be, parts of security, and then we may have to think about overlay or expertise and all that, which we’re experimenting with. But don’t — aren’t far enough along to be able to announce that we’re doing this or that.

Mike Sikos

Great, great. And I think we probably only have time for one more item here before we go, but I just wanted to talk about the long-term model here for you guys, right?

David Obstler

Yes.

Mike Sikos

So you’re already delivering very strong operating margins, free cash flow generation. As we think — as revenue in ARR continues to scale, based on these growth drivers we’ve been talking about. Are there specific categories where Datadog is looking to drive more efficiency? How do you frame out that model over the next couple of years?

David Obstler

Well, I think we’ve been — when we’re not public, we gave term target of 20% to 25% operating margins. And a lot of times companies don’t evidence the ability to get there. We evidence the ability maybe, you know, quicker than how long-term target. And this gives us tons of degrees of freedom. This shows us is that there’s lots of levers to pull. And we’ve proven, as you’ve said, that we are profitable, there is scalability. There are lots of things. If you look at how we’ve handled gross margin. And so there’s a lot of this is in our decision making of given the economies and scalability and the model, of investment decisions. And we’ve been a really good steward of capital. We’ve really not binged or gone down — or gone to, you know, what you see out there in the market. We stayed, you know, right up the middle and consistent.

And I think this lets us, you know, make the decisions between how intensely we want to invest for the future versus do it more slowly. And we think there’s a very long-term opportunity and we think we’ve earned the trust and we’ve been able to show that this is a very scalable cash producing model that we can pull levers of investing more intensely and at this time and pulling back to better control that. And that’s what we watch every day in managing this.

Mike Sikos

That’s great. That’s great. And, unfortunately, we’re going to have to leave it there. But —

David Obstler

Good questions. Thank you.

Mike Sikos

Dave, I really appreciate the time today. Yes, thank you very much.

David Obstler

Thank you, everybody. Have a good day and a good conference. Thanks.

Mike Sikos

Thank you.

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