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DataDog Is Building a Huge Moat With Its Sticky Ecosystem

By Brian Withers and Brian Stoffel - Updated Jun 23, 2021 at 8:44AM

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As customers get more embedded, it's harder to leave.

Investors love companies with moats. A business moat acts exactly the same way a castle moat does. It makes the business/castle harder to attack. On a Fool Live episode recorded on May 12, Fool contributor Brian Stoffel discusses the cloud monitoring specialist Datadog (DDOG 6.10%) and explains how investors can tell that this company is building an impressive moat.

Brian Stoffel: Next on the list is Datadog. For those unfamiliar, Datadog makes a whole suite of products that help development and operations team monitor basically their digital assets. Let's make it super simple, like let's you monitor how your apps and your website is performing and a lot more than that. They announced earnings and when they did, they announced that revenue was up 52 percent, total customers that they have signed on for at least one of their products was up 32 percent to 15,000, and free cash flow more than doubled.

But here are the three metrics that I think are really important, and I apologize I had a time for not making a visual of this because I think hearing me just saying numbers is one thing, actually seeing it can drive it home, and I didn't have time to do this. But the number of customers that are paying Datadog at least $100,000 a year was up 50 percent. Obviously, the pandemic, the fact that we're comparing to a period of time that was right when it started juice those results.

But this is what matters the most, Datadog had one tool that you could use four or five years ago, one. Today, they've got 10 and they are working on more. The number of customers Datadog has that were using at least two of those tools was up 57 percent from the same time last year. The number of customers using at least four of the tools almost tripled.

Here's why that's so important. The more tools you add, the harder it is to leave. The more tools that are added, the more evidence it is that Datadog has optionality, which means that they have many ways to fulfill their mission and their unofficial mission statement that the two founders have is to "restore sanity to the development and operation side of companies." There are lots of ways to restore sanity. I think it was a really very positive earnings report.

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