Hot in Enterprise IT/VC - What's 🔥 in Enterprise IT/VC #329
Datadog is one of the best executing software infrastructure companies having grown 63% YoY to $1.68B of Revenue in 2022. Q4 was also strong clocking in at $469.4M of Revenue but a YoY growth rate of 44%. While these numbers are fantastic, the decelerating growth in Q4 is certainly an area of concern. Such that management guided down its 2023 growth forecast to 23% - yes 23% YoY to $2.07B. Folks that’s a steep drop from 63% growth and reflective of the IT spending environment we live in today. Let’s dig deeper. Here’s Olivier Pomel, Co-Founder and CEO
look forward to digging into this later today esp. what net $ retention looks like - I suspect next 3-6 mos we will see that best in class NDR of 130% will be more like 115-120%
"Analysts at RBC Capital Markets said the guidance, implying 24% annual revenue growth, looked… https://t.co/XI07MexFk0 Barron's @barronsonline It’s clear that Datadog’s multi-product portfolio has been keeping the NDR >130% but there are signs of this not lasting as customer usage 📉. It’s been an absolute rule for the last couple of years that the BEST enterprise software companies have a Net $ Retention > 130%. It’s been the case for the last two years, and many still consider that to be a universal truth. In fact it is one of the most amazing and efficient growth engines as you can see from this chart from Iconiq - as companies scale, the breakdown of New ARR from expansion of existing customers is close to 50% for companies >$50M ARR. While Datadog does not explicitly discuss NDR numbers for its lower growth forecast, it’s pretty clear that’s a huge reason for the forecasted lower growth in 2023. When finally asked directly about NDR, here’s Dave Obstler‘s (CFO) answer: Implicit in that guide is below 130% NDR.
While Datadog is just one data point on infrastructure, it’s an important one given its market share, success, and breadth of products. While not an infra company, here’s Monday.com trending lower as well. Here’s Twilio As you plan your sales models and forecasts for 2023, I’d take a harder look at what NDR numbers you’re benchmarking against as it seems to me that while Datadog hit it’s 130% NDR number, it’s going to fall this year, and it’s just the beginning of a new normal for best in class which will likely land in the 115-120% range, save a few outliers. As a startup who is modeling against some of these public comps, don’t fret as these public cos are reporting a few months behind, and I can promise you that the >130%+ NDR days are over. You are probably still best in class when the dust settles in the next few months. Just keep building, fighting the good fight, and protect that customer base. As always, 🙏🏼 for reading and please share with your friends and colleagues. Scaling Startups
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What's 🔥 in Enterprise IT/VC #328
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Avoid the death spiral of activity - also meet EdGPT 🤖
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