Please ensure Javascript is enabled for purposes of website accessibility

DataDog Is Building a Huge Moat With Its Sticky Ecosystem

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Datadog, Inc. Stock Quote
Datadog, Inc.
$101.05 (6.10%) $5.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.