Datadog (DDOG -1.45%) and Domo (DOMO 2.02%) are both growing cloud-based data visualization companies.
Datadog's platform monitors databases, servers, and apps in real time across an entire company. It aggregates that data onto unified dashboards, making it easier for IT professionals to spot and diagnose problems.
Domo collects an organization's business-related data from various software platforms then aggregates all that information onto a single app for visualization, management, and analytics purposes. Companies can also customize their experiences with apps from Domo's integrated app store.
Image source: Getty Images.
Datadog and Domo serve completely different markets, but they both break down silos and make it easier to manage companies. Both companies are also fairly well-insulated from macro headwinds and consistently generate high double-digit revenue growth. Should investors consider investing in either company as inflation, rising interest rates, and the Russian-Ukrainian conflict cast dark clouds over high-growth tech stocks?
1. Datadog: Massive growth with a sticky ecosystem
Datadog's revenue rose 70% to $1.03 billion in fiscal 2021, which aligns with the calendar year. Its adjusted gross margin dipped from 79% to 78%, but its net loss still narrowed from $24.5 million to $20.7 million on a generally accepted accounting principles (GAAP) basis. It also turned profitable on a GAAP basis in the fourth quarter. On a non-GAAP basis, its full-year net income surged 133% to $166.8 million.
Datadog's number of customers that generated annual recurring revenues (ARR) of at least $100,000 increased 63% to 2,010. Its number of customers with at least $1 million in ARR jumped 114% to 214. Its dollar-based net retention rate, which gauges its growth per existing customer, has remained above 130% for 18 consecutive quarters.
Datadog expects its revenue to grow 47% to 49% in fiscal 2022 and its gross margins to remain in the high 70s as it benefits from favorable cloud hosting costs. Analysts expect Datadog to remain unprofitable in fiscal 2022, but they still expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise 11% to $209 million.
Datadog ended the year with $271 million in cash and equivalents, $1.28 billion in marketable securities, and a manageable debt-to-equity ratio of 1.3. The stock isn't cheap at 29 times this year's sales, but its impressive top-line growth and high retention rates could justify that premium valuation.
2. Domo: Decent growth with widening losses
Domo's revenue rose 23% to $258 million in fiscal 2022, which ended this January. Its adjusted subscription gross margin rose from 81% to 83%, and its billings growth of 30% in Q4 marked its highest billings growth rate in 14 quarters. Its net retention rate also stayed above 100%.
However, Domo's net loss widened from $84.6 million in fiscal 2021 to $102.1 million in fiscal 2022 on a GAAP basis. On a non-GAAP basis, its net loss narrowed slightly from $50.8 million to $41.5 million. Its cash and equivalents also declined 8% year over year to $83.6 million.
Those widening losses are alarming, but Domo's liabilities also jumped 24% to $370.6 million and eclipsed its assets of $244.6 million at the end of 2021 -- which gives it a negative book value. That high leverage could make it tough for Domo to secure fresh funding as interest rates rise.
Domo doesn't expect that pressure, which it attributes to the expansion of its sales team and other investments, to ease anytime soon. It expects its revenue to rise 22% to 24% in fiscal 2022, but its non-GAAP net loss to widen again. Analysts expect its adjusted EBITDA loss to widen from $23.3 million to $30.1 million.
Domo's stock might initially seem cheap at four times this year's sales since comparable companies like Salesforce (CRM -1.50%) and Splunk (SPLK) trade at about six times this year's sales, but that lower valuation reflects its widening losses and ugly balance sheet.
The obvious winner: Datadog
Datadog is a lot pricier than Domo, but it's growing at a faster rate, its bottom line growth looks more stable, and its leverage isn't too high.
Domo's revenue growth is decent, but its steep losses and negative book value are impossible to ignore. Domo could also struggle to compete against larger competitors, like Salesforce's Tableau and Splunk, in the crowded data visualization software market.
In short, Datadog is a better all-around investment than Domo. Its shares could remain volatile in this challenging market, but the company could evolve into a much larger cloud software company over the long term.
