NET and DDOG Quarterly Earnings release after market close (AMC)
DDOG: After reviewing the quarterly earnings releases and listening to both calls (OK, I have to admit that I listened to NET live and only tried to read the transcript of the DDOG call which was still difficult and amusing with the errors…the DDOG CEO is French and incredibly hard to understand…conversely, while the NET CFO is German, I at least can understand his pronunciation much clearer!), I was NOT disappointed with either company’s performance…indeed, I was very happy to see both companies continued execution and feel my thesis is still in tact for both. I’m not going to review every KPI, but suffice to say that while DDOG had a very tough comparison to prior quarter, DDOG impressed me with their sequential quarterly acceleration jumped significantly higher than in any quarter to date. For the last three quarters of 2020, their revenue increased each quarter in Q2, Q3 and Q4 from $8.8m to $14.7m to $22.8m! While this only translated into a “paltry” 56% q/q growth compared to prior year Q4’19, it showed significant growth at scale and bodes very well over the next few quarters if they continue to add as much revenue sequentially. They also announced two acquisitions that will be immediately accretive, huge partnerships with Google and MSFT azure, and 2021 annual guidance of 38%, which I believe to be extremely conservative and that they will easily crush that number, though I will watch it carefully each quarter. The way this works is that they have to give themselves some room to beat the analysts expectations…a game I detest, but which we have to understand and play. I entered the quarterly release fully prepared to reduce my position in DDOG and came out very eager and happy to hold onto it and even tempted to buy more today on the dip. A ten minute reading of their earnings release will give you many more metrics and KPI’s and I strongly recommend getting comfortable and practicing reading through the quarterly earnings release and the transcript of the call. Reading the earnings release and call is literally the difference in investing between practicing baseball in the pee-wee little league where they are learning to throw and hit the ball versus the Professional Major Leagues. It will make ALL the difference.
NET: Cloudflare impressed me on several levels, as it has the past year. While they did not “accelerate” their Q/Q growth, which dropped slightly from 54% growth q/q to 50% growth q/q, they turned in $125.9m for Q4 (compared to prior year of $84m in Q4’19) and $431m for the year. Their Net Dollar based retention rate increased significantly by 3% points to 119% and they had the largest growth yet of customers greater than $100k and signed several 3+ year deals in excess of $1m each!! They gave multiple examples of huge Fortune 500 customers that they onboard in a few days…one called them on a Friday after a potential breach due to Solar winds and Cloudflare (NET) had them up and running on multiple modules including Zerotrust Cloudflare for teams over the weekend!! This is not like Boeing getting an order for a plane that takes 5 years to build…this is a multi-year, multi-million dollar implementation over a weekend for a Fortune 500 company. Most of the revenue for this implementation was not even recognized this quarter and will contribute to NET’s revenue growth over the next three years. This is the power of ARR or Annual Recurring Revenues. This type of scalability, with very little cap ex requirements, will only continue as they announced 38% customer increase, 10,000 new paying customers sequentially in the quarter, 20,000 new paying customers compared to the Q4 a year prior, and an increase in their gross margins to 78.1%. But wait, RPO’s (Remaining Performance Obligations, which are basically the revenues closed that they will be able to recognize in future quarters) increased a whopping 75% q/q!!
Both of these company’s stocks traded down significantly this morning…which was clearly a huge buying opportunity as they have also both recovered throughout the trading day. If you are disappointed with the stock price performance today, please consider the ancient stoic philosophy called prospective retrospection, and realize that NET and DDOG are coincidentally still both UP (yes, after today’s drop) by a whopping +12% in the last 10 trading days. While my NET position is plenty large enough already and I am holding firm on it, I took the opportunity and added a bit to DDOG. Cheers!! -Poleeko
