Cloud company Datadog surges 50% in U.S. market debut

(Reuters) - Shares of Datadog Inc, a data analytics and cloud monitoring company, surged nearly 50% in their market debut, after pricing its initial public offering above expectations.

Datadog’s shares opened at $40.35, giving it a market capitalization of $11.69 billion. Shares rose as high as $41.44 in early trade.

The New York-based company had priced its IPO at $27 per share on Wednesday, above its initial target range of $24-$26, raising about $648 million, at a valuation of about $7.83 billion.

If underwriters exercise their option of buying an additional 3.6 million shares, the gross proceeds may go up to $745.2 million.

The provider of services for monitoring the health of cloud-based applications counts companies such as Biogen, Comcast, Deloitte, and Twitter among its customers.

Cisco Offered $7 Billion-Plus for DataDog As Company Prepares to IPO

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Cisco Systems Inc. approached software company Datadog Inc. in recent weeks with a takeover offer significantly higher than the $7 billion valuation it aimed for in its initial public offering, according to people familiar with the matter.

Datadog rebuffed the advance to pursue a stock listing because it felt it could be worth more as a public company over time, according the people, who requested anonymity because the talks were private. Talks between Cisco and Datadog are no longer active and Datadog is committed to going public, they said.

Cisco rose less than 1% to $49.72 at 10:12 a.m. in New York trading, for a market value of about $211 billion. Several rivals to Datadog also gained, including New Relic Inc., up 5.8%, Splunk Inc., which rose 3.9% and Elastic NV, which rose 3.1%.

Datadog raised $648 million in its U.S. IPO Wednesday, selling 24 million shares for $27 each after marketing them at $24 to $26. The listing values Datadog at $7.83 billion.

Software companies that power business processes have delivered some of this year’s best IPO debuts thanks to high margins and solid revenue. Zoom Video Communications Inc. and Crowdstrike Holdings Inc. have doubled in value since they began trading and are among the ten best performing offerings this year, according to data compiled by Bloomberg.

In 2017, Cisco succeeded in buying a company on the eve of its IPO. It acquired AppDynamics Inc. for $3.7 billion right before the data analytics company was set to price its listing.

What is Datadog? Everything You Need to Know About Today’s IPO

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Datadog monitors cloud applications for companies through analyzing data, monitoring servers, tools, databases, and various services to help companies maximize performance and improve user experience.

"Fundamentally, everything looks like Datadog is firing on all cylinders and hitting all their metrics," Matthew Kennedy, senior IPO market strategist at Renaissance Capital, a provider of institutional research and IPO ETFs, told Fortune. "These types of IPOs have proven to be very profitable for investors this year. It’s just the latest high growth software company that investors are excited about, and this one just has growth and profitability that few do."

In fact, while 2019 IPO investors may have become (wearily) used to high cash burn companies (think Lyft, Uber, and potentially WeWork), Datadog is a breath of fresh air on the fundamentals side. The software company had 97% growth in 2018 (year over year) with $198 million in revenue, with a very minimal cash burn (about negative 3%). Compare that to the multi-billion dollar cash burn of several of 2019's largest IPOs, and it's clear why investors are chasing Datadog. In fact, according to research and advisory firm IPO Boutique, the offering was already oversubscribed before its debut—meaning there was more investor demand for shares than actual shares to sell.

"Datadog is such a rare combination of growth and profitability, so it is unlike most of the IPOs we’ve seen this year, even the ones that have gotten extremely high valuations," Kennedy says. With around an $8 billion enterprise value and 30x's trailing sales, Datadog is a big ask for investors—but Renaissance Capital's Kennedy believes they are willing to pay a pretty penny.

To boot, the cloud monitoring company boasts around a 150% dollar-based retention rate (what Kennedy calls "so sticky it stays there"), and D.A. Davidson's Rishi Jaluria writes that "Datadog's strong growth rates have continued, with [the first half of 2019] revenue up 79% [year over year], which we believe makes Datadog the second-fastest growing software company after [Zoom Video Communications]"—and even calls the company's financials "beyond impressive." Coupled with an aggressive opening price of $27 a share, analysts are confident the software player will perform well.

But Datadog isn't alone in the field—in fact, there are several competitors, including Dynatrace and New Relic, that may give Datadog a run for investors' money.

New Relic is almost twice the size of Datadog, according to a D.A. Davidson report, and boasts higher gross and operating margins, and similar metrics on enterprise and platform, Jaluria writes.

Datadog’s subscription-based offering helps developers and administrators make sure their applications and underlying infrastructure are working properly. The software can track performance for systems running in public clouds, or in corporate data centers.

At its post-pop market cap, Datadog is being valued at about 44 times trailing 12-month revenue, which makes it among the priciest cloud software stocks on the market. Zoom is the only company with a higher price-to-sales ratio at about 50, according to FactSet, and Crowdstrike is next at 44.

In the first six months of 2019, Datadog’s revenue jumped 79% to $153.4 million. The company recorded a net loss of $13.4 million in the first half of the year as research and development costs doubled and sales and marketing costs increased almost as much.

Third Quarter 2019 Financial Highlights:
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• Revenue was $95.9 million, an increase of 88% year-over-year.
• GAAP operating loss was $(4.2) million; GAAP operating margin was (4.4)%.
• Non-GAAP operating income was $0.6 million; non-GAAP operating margin was 0.7%.
• GAAP net loss per basic and diluted share was $(0.04); non-GAAP net income per diluted share was $0.00.
• Operating cash flow was $3.8 million, with free cash flow of $(3.7) million.
• Cash, cash equivalents, and restricted cash were $771 million as of September 30, 2019.
• As of September 30, we had 727 customers with ARR of $100,000 or more, an increase of 93% from 377 as of September 30, 2018.

Datadog and Microsoft Announce Strategic Partnership

Datadog will be available as a first class service within the Azure Portal, enabling customers to accelerate their cloud journey

September 30, 2020

NEW YORK--(BUSINESS WIRE) -- Datadog, Inc. (NASDAQ: DDOG), the monitoring and security platform for cloud applications, today announced a new strategic partnership with Microsoft Azure. As part of this launch, Datadog will now be available in the Azure console as a first class service. This means that Azure customers will be able to implement Datadog as a monitoring solution for their cloud workloads through new streamlined workflows that cover everything from procurement to configuration. The improved onboarding experience makes Datadog setup automatic, so new users can start monitoring the health and performance of their applications with Datadog quickly, whether they are based entirely in Azure or spread across hybrid or multi-cloud environments. With the deepest integration and the easiest configuration, Datadog is now clearly positioned as the premier monitoring solution for Azure.

In addition to the integration enhancements, the new channel through the Azure Marketplace allows customers to draw down on their committed Azure spend to purchase Datadog. This makes it significantly easier for customers to find budget, and also aligns incentives for Azure and Datadog sales teams for better collaboration and engagement in co-sell motions with enterprise clients. As a result, this partnership will enable more Azure customers to leverage Datadog's observability platform to drive successful cloud modernization and migration initiatives.

Datadog's native presence represents a first-of-its-kind integration of a third-party service into Azure.

“Azure is the first cloud to enable a seamless configuration and management experience for customers to use partner solutions like Datadog. Together with Datadog, we are enabling customers to use this experience to monitor their Azure workloads and enable an accelerated transition to the cloud,” said Corey Sanders, Microsoft Corporate Vice President, Azure.

"Observability is a key capability for any successful cloud migration. Through our new partnership with Microsoft Azure, customers will now have access to the Datadog platform directly in the Azure console, enabling them to migrate, optimize and secure new and migrated workloads," said Amit Agarwal, Chief Product Officer, Datadog.

Through the new experience in the Azure Portal, customers can:
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• Purchase a Datadog plan and consolidate billing through the Azure Marketplace
• Start sending Azure logs and metrics to Datadog with a few clicks
• View and manage which Azure resources are monitored by Datadog
• Easily deploy the Datadog agent to Azure hosts and web applications

For more information about the partnership see our blog post. To learn more about Datadog please visit: http://datadoghq.com.