Investors frequently commend businesses for surpassing their expectations and enhancing their trajectory each quarter. However, predicting whether a business will consistently perform in this manner is inherently uncertain.
Another effective method of evaluating a company is by scrutinizing its executives. I argue that investing in CEOs who have steered their companies from inception to public offering and beyond can be advantageous for shareholders.
One such exemplary CEO is Olivier Pomel, the co-founder and CEO of Datadog, a company based in New York City that specializes in cloud monitoring and security products. Recently, Datadog outperformed expectations in terms of growth and provided an optimistic outlook for the upcoming quarter.
Pomel shared insights into his journey during a discussion on November 16. He highlighted that three years after going public, only 4% of founders retain a significant stake in their companies.
Datadog’s Impressive Performance in the Next Quarter
Datadog’s platform monitors the performance of cloud-based applications for its clients. The company reported a faster-than-expected growth on November 7, leading to a significant 28% surge in its stock price.
Datadog stands out as one of the few companies capable of quantifying the impact of AI on growth. During an earnings call, Pomel revealed that “AI-native customers” contributed to 2.5% of Datadog’s annualized revenue in the third quarter.
Key figures reported by CNBC include:
- Q3 revenue: \(547.5 million, a 25% increase exceeding estimates by \)23.4 million.
- Adjusted earnings per share: 45%, surpassing expectations by 11%.
- Q4 revenue guidance: a projected range of \(564 million to \)568 million, with the midpoint exceeding LSEG estimates by approximately $23 million.
- 2024 profit forecast: \(2.1 billion, \)40 million higher than anticipated by LSEG.
Datadog’s most robust advice for Q4 stemmed from 2023. The company faced a significant stock drop in August due to reduced support as businesses scaled back on cloud expenditures. Notably, Datadog’s cloud monitoring and security products are compatible with Amazon Web Services, Google Cloud, and Microsoft Azure.
Transitioning from Co-Founder to CEO Three Years After Going Public
Having overseen Datadog from its inception to public offering and beyond, Pomel has steered the company’s growth for over four years. Since going public on September 20, 2019, Datadog’s stock has surged by 205%, outperforming the Nasdaq index’s 74% increase between September 20 and November 17, 2023.
However, despite these achievements, Datadog’s shares closed on November 17 approximately 43% below their peak of $194 per share, echoing the trend seen in many technology stocks that peaked in early November 2021.
Executives like Pomel are a rarity. Through interactions with over 30 such leaders, it became evident that their distinguishing factor lies in their insatiable appetite for learning and problem-solving—referred to as Cognitive Hunger—which shields them from cognitive stagnation.
Cerebral Hunger instills five developmental processes:
- Efficiently addressing pertinent issues
- Acquiring and retaining clientele
- Adapting to evolving market conditions
- Investing in novel growth avenues
- Cultivating future leaders
Pomel elaborated on his approach to managing these processes.
He also recounted his journey from France to the United States, where he joined IBM in 1999. Subsequently, he joined Mobile Generation in 2002, a tech firm focusing on student progress tracking in public schools. This venture was later acquired by News Corp. in November 2010.
Effectively Addressing the Right Issues
Datadog was founded to tackle prevalent challenges faced by numerous businesses. Pomel, along with Datadog’s co-founder and CTO, Alexis Lê-Quôc, identified the need to bridge the gap between engineering and business functions, which laid the foundation for Datadog’s inception.
They capitalized on the burgeoning cloud services market at a time when cloud technology was still nascent. The unforeseen significance of cloud services prompted Datadog to streamline operations and enhance accessibility, exceeding their initial expectations.
Client Acquisition and Retention
In the early stages, when skepticism loomed over Datadog’s prospects, the focus remained on attracting and retaining clients. Pomel recalled the initial challenges faced upon relocating to New York City in 2010, emphasizing the dedication to identifying genuine problems and engaging with potential clients.
Datadog’s collaborative approach with clients led to the development of tailored solutions, subsequently bolstering the company’s revenue streams.
Adapting to the Rise of Generative AI
Datadog capitalized on the surge in demand for Generative AI, catering to clients involved in LLMs and development tools. The increasing adoption of AI technologies, despite being in its nascent stages, has significantly contributed to Datadog’s revenue stream.
Navigating the Publicly Traded Landscape
Transitioning to a publicly traded entity necessitated acquiring new skills. Pomel’s tenure at Mobile Generation provided valuable insights into scaling operations, transitioning from a technical expert to a team leader. The experience of waiting eight years for a green card underscored the importance of patience and learning from setbacks.
Investing in Future Growth Opportunities
Datadog’s operational efficiency enables substantial investments in new product development. Pomel emphasized allocating 30% of profits towards innovative solutions for clients.
Fostering a Culture of Cognitive Hunger
Datadog’s ethos revolves around developing high-quality products while minimizing unnecessary drama. The emphasis lies on continuous learning and creating a conducive environment for innovation, fostering a growth mindset among employees.
Cultivating Future Leaders
Datadog’s commitment extends to nurturing the next generation of leaders, ensuring a seamless transition and fostering a culture of continuous improvement.
Future Outlook for Datadog Stock
Analysts project a promising outlook for Datadog’s stock, with a target price of $114 based on 27 Wall Street analysts’ estimates. The optimistic projections reflect a potential 4.64% increase from Datadog’s value on November 17.
Following Datadog’s robust performance in the third quarter, analysts expressed confidence in the company’s ability to leverage AWS for sustained growth. The adoption of relational AI is poised to drive demand for Datadog’s products, with a focus on enhancing efficiency through open-source models.
While the future holds promise, Pomel remains cautious about managing high expectations. He anticipates a gradual yet significant shift towards open-source models, emphasizing the importance of scalability in training models.
In conclusion, Datadog’s journey under Pomel’s leadership exemplifies the transformative power of Cognitive Hunger and strategic acumen in navigating the complexities of the tech landscape.
