Snowflake (SNOW -1.24%) and Datadog (DDOG -1.81%) both break down "data silos" for companies with their cloud-based services.
Snowflake's platform pulls data from multiple computing platforms and centralizes those results for third-party apps and data visualization services. Datadog's platform helps IT professionals monitor the performance of different servers, databases, cloud services, and apps on its unified dashboards, which makes it much easier to spot potential problems.
Snowflake and Datadog operate in different markets, but they both simplify expensive and complex tasks for large companies. Back in January, I compared these two companies and claimed Datadog's profitability and lower valuation made it a better buy than Snowflake. Datadog's stock has rallied 56% since I made that call, while Snowflake's stock has only risen about 14%.
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Will Datadog continue to outperform Snowflake next year? Let's take a fresh look at both silo-busting software companies to find out.
Snowflake continues to generate dazzling growth
Snowflake's growth rates are stunning: Its revenue soared 174% in fiscal 2020, rose 124% in fiscal 2021, and grew another 108% year over year to $835.6 million in the first nine months of fiscal 2022.
Snowflake expects its product revenue, which accounts for most of its top line, to grow 103% to 104% for the full year. Analysts expect its total revenue to rise 104% this year, then climb 66% to $2.01 billion in fiscal 2023.
Snowflake's number of customers rose 52% year over year to 5,416 in the third quarter. Within that total, 148 customers generated over $1 million in trailing-12-month product revenue, representing 128% growth from a year earlier. It also ended the quarter with a net revenue retention rate of 173%, up from 169% in the second quarter and 162% in the prior-year quarter.
Snowflake's strengths are easy to spot, but so are its weaknesses. It isn't profitable by either generally accepted accounting principles (GAAP) or non-GAAP measures, and its net losses are widening. Its market cap of $99.5 billion also values the company at 50 times next year's sales, making it one of the priciest tech stocks on the market today.
On the bright side, Snowflake expects its non-GAAP product gross margin to rise from 69% in fiscal 2021 to 74% in fiscal 2022. That ongoing expansion indicates it still has plenty of pricing power in its high-growth niche market.
Datadog's growth is slower but more stable
Datadog's revenue rose 83% in 2019, grew 66% in 2020, and climbed 65% year over year to $702.6 million in the first nine months of 2021. It expects its revenue to increase 65% for the full year. Analysts expect its revenue to increase another 42% to $1.41 billion in 2022.
Datadog ended its third quarter with 1,800 customers that generated more than $100,000 in annual recurring revenue, which represented 66% growth from a year earlier. Datadog doesn't disclose its net retention rate every quarter, but it said that metric stayed above 130% over the past year.
At the end of the third quarter, 77% of Datadog's customers were using two or more of its products, up from 71% a year ago. Thirty-one percent of its customers were also using four or more products, compared to 20% last year.
Datadog's non-GAAP gross margin dipped from 79% in 2020 to 77% in the first nine months of 2021, mainly due to elevated cloud hosting costs. But Datadog expects to rein in those costs in the fourth quarter, and for its near- and mid-term gross margins to remain in the "high 70s."
Datadog remains unprofitable on a GAAP basis, but it turned profitable on a non-GAAP basis with a net profit of $71.6 million in 2020. It expects its non-GAAP earnings per share to improve about 80% for the full year.
Datadog's stock still isn't cheap. Its market cap of $51.2 billion values it at 36 times next year's sales, and it trades at nearly 360 times its forward earnings.
The winner: Datadog
Snowflake and Datadog are both promising growth stocks. But once again, Datadog's lower valuation, non-GAAP profitability, and milder deceleration make it the more compelling investment in this inflation-rattled market.
