Slack (WORK) and Datadog (DDOG 0.48%) were both major software IPOs last year. Slack, which went public via a direct listing last April, provides streamlined communication tools that help companies replace traditional emails and phone calls. Datadog, which arrived via a traditional IPO last September, helps companies analyze their full infrastructure -- including cloud services, servers, apps, services, and more -- on a single real-time dashboard.

Both companies provide innovative services, but investors clearly favored Datadog over Slack. Datadog's stock has more than tripled from its IPO price of $27 per share, while Slack's stock has risen less than 20% from its initial price of $26 per share. Let's see why Datadog attracted more bulls, and whether that trend will continue.

Cloud-based services running on a laptop.

Image source: Getty Images.

Which company is growing faster?

Slack enjoys a first mover's advantage in its market, but it currently faces stiff competition from Microsoft (MSFT -0.25%) Teams, which the tech giant now bundles with its other cloud-based services. Datadog's top competitor is New Relic (NEWR), which offers similar services through its New Relic One dashboard.

Slack's revenue rose 57% to $630.4 million in fiscal 2020, which ended this January, and climbed another 50% annually to $201.7 million in the first quarter of fiscal 2021. Its number of paid customers grew 28% annually to 122,000 during the quarter, and 963 of those customers generated over $100,000 in recurring revenue -- up 49% from a year ago. Its net dollar retention rate, which measures its growth per existing customer, hit 132%.

Those robust figures indicate its platform, which can be integrated with a wide range of services (including Microsoft Office) isn't losing ground to Microsoft Teams yet. Slack expects its revenue to rise 42%-44% annually in the second quarter and 36%-38% for the full year.

Datadog's revenue surged 83% to $362.8 million in 2019, then jumped another 87% to $131.2 million in the first quarter of 2020. Datadog ended the quarter with 960 customers, which generated over $100,000 in annual recurring revenue -- up 89% from a year earlier.

Over 400 platforms, including Cisco's Meraki and Amazon's cloud-based tools, now support Datadog's software "out of the box," and that support could widen its moat against New Relic and other competitors. Datadog expects its second-quarter revenue to rise 62% annually at the midpoint, and for its full-year revenue to grow 54%.

Datadog beats Slack in another key area

Datadog not only generates stronger revenue growth than Slack. It's also a lot closer to consistent profitability.

A network of social connections.

Image source: Getty Images.

Slack isn't profitable, and its GAAP net loss widened from $140.7 million to $571.1 million in fiscal 2020. In the first quarter of 2021, its net loss widened again from $33.3 million to $75.2 million.

Slack's non-GAAP net losses narrowed year-over-year during both periods, but it still lacks a meaningful path toward profitability -- which is troubling when a tech titan like Microsoft is breathing down its neck. Slack didn't provide any bottom-line guidance, but analysts expect its non-GAAP net losses to slightly narrow over the next two years.

Datadog's GAAP net loss widened from $10.8 million to $16.7 million in 2019, but it posted a GAAP profit of $6.5 million in the first quarter, compared to a loss of $9.5 million a year earlier. Datadog also expects to stay profitable on a non-GAAP basis in both the second quarter and the full year. It attributed its improving profitability to its expanding gross margins, which are buoyed by the "efficient" usage of its cloud hosting.

The clear winner: Datadog

Datadog isn't cheap at nearly 50 times its estimated sales for 2020. Slack, by comparison, trades at about 20 times this year's sales. However, investors are paying a premium for Datadog for three obvious reasons: It generates stronger revenue growth than Slack, it's more profitable, and it faces less formidable competitors.

Investors should be careful with Datadog, since its stock could deflate quickly if its growth stalls out. But for now, this high-growth stock could keep attracting more bulls than Slack, which needs to punch back against Microsoft while narrowing its losses.