Right. Perfect. We're live. So, my name is Mike Cikos. I'm lead analyst covering infrastructure software here at Needham. Thank you for joining us at today's TMT conference. Please do announce that we have the CFO from Datadog with us. Thank you, David.
Thank you for having us.
It's going to be a 40-minute fireside. I have a number of questions on my side, but I do wanna leave some time at the end for you guys should you have any questions you wanna lob in. But, let's try and make this as interactive as possible. And thank you again for joining us. David, we're right on the heels of the Q1 earnings season. I feel like it never ends as far as earnings season.
Exactly.
Just to start, put some parameters around it. Can you provide a quick update on the company's most recent earnings results? Quick highlights from the.
Yeah. Some of the highlights were, I think we talked about, the organic growth rate, which is related to the pressure or not pressure of optimization, where we said that the organic or same product growth rate in the first quarter was higher than any quarter since Q2, Q3 of 2022. That indicates the second theme, which is the pressure of the optimization, particularly for the larger customers, has continued to abate. So that's the reason why the organic growth rate, the principal reason, went up. We talked about the fact that we continue to see clients get back to work, get back to workloads, in migrating applications to the cloud, which is what triggers our revenues. Some of the themes that were talked about were seasonality in Q4 to Q1.
Despite the fact that we had the largest ARR or adds, the sequential growth between Q4 and Q1 is always lower because of the linearity where the fourth quarter is front-weighted because of the December effect of holidays, which we can talk about. The first quarter is more back-weighted, more normal linearity, which causes that pattern. So the business put on a lot of ARR. In addition, we continue to have solid new logo growth. One thing that is talked about quite a bit, we'll talk about here, is the impact of AI, where we'll spend more time. We gave a metric about customers that are tool providers that are increasingly using Datadog. But I think we said, and this is echoed by a lot of other software companies, that for the most part, AI injected into applications, production applications, is gonna take some time.
A lot of the work is more internal and sandbox, etc. We can talk more about that. In terms of the P&L, continue to have strong results, strong cash flow, strong operating profit. We did say we're in investment mode, trying to ramp up our investment during the year. We can talk more about that. I'm sure there'll be a question, and we can talk more about some of the seasonality between the fourth quarter and first quarter in billings, etc., which cause changes that don't affect our revenues and need to be looked on a weighted average basis but are the source of much question from investors and analysts.
Awesome. I think you just teased every dimension we're gonna go.
There you go. We're done.
You could just go.
Yeah. Just right. Exactly.
40 minutes. I think.
I left you some room. I said, "We'll go into some of these.
I appreciate it. I appreciate it.
So I did. Yeah.
So, coming back to, like, one of the other things that we heard coming out of this quarter as well, hoping you can shed some light on. But, a lot's been made out of the extra day and 1 Q related to the leap year. Can you explain whether this was a benefit or the materiality of it from a revenue standpoint to how the March quarter played out?
So a portion of our revenues, mainly in the logs area, synthetics, have to do with usage, consumption, uses. A number of our other products are based on high watermarks in a month or other types of metrics. So it has some effect to the positive, not material, but one has to look at the within the quarter or any quarter. This applies to any quarter. Essentially, number of weekdays or workdays is a positive. Number of weekends where people aren't working is a decrement. You'd have to look at holidays and when they existed and whether that means people were back to work on a certain day or not. So it's not a significant thing within the scheme of all of that.
And we would be talking, if we did that, we'd be talking about that every quarter 'cause there's that effect every quarter of plus or minus based on the number of, I would say, workdays in the quarter.
Great. We've gone through that same exercise. It's a days-adjusted basis for folks.
Days exactly. Yeah.
Mm-hmm. Exactly.
Yeah. Exactly. Days-adjusted, including you'd have to, and we do it. We look at it essentially as weekends. You have to look at also when, where the holidays were, and what happens. Whether they were on Thursday or Friday, you know, things like that. Yeah.
Okay. And then I guess the couple of different elements. If I start with the positive first. I think one of the things that that kinda surprised people was just the how strong the RPO growth was on a yearly basis, right? 52% o n RPO. CRPO is up low 40s. Given those dimensions, it's kinda tough to dismiss how strong those t hose pieces are to the story. Can you help us think about why that might be less relevant versus I know you continue to point people towards revenue trends on the consumption?
Revenue and ARR. Yeah. So that has to do with, with, commitments and contracts. We don't recognize revenues based on the commitment. We recognize it based on the consumption with an underpinning of the commitment. So if they don't use the commitment, it gets recognized. So, that can be quite variable and needs to be looked at over time. Sometimes it could be quite a bit higher than the revenue growth, sometimes lower. And we try in each quarter to basically reflect that. In the fourth quarter, we talked about the fact that we had, A, the normal seasonality of more intense commitments or contracts in the fourth quarter, plus we had client demand for three-year contracts, which was higher, which took the RPO up.
Now, you might ask, "What about the CRPO?" That also created contract duration within that one year and also complemented the CRPO. So it's both of those things. So I would say duration, plus, you know, timing in the year. It doesn't mean it's a bad thing. Long -term, you know, the CRPO and the revenues sort of converge. And it really depends about something, you know, we don't , that you have to compute, which is the micro duration movements sequentially and year -over -year.
Got it. Got it. And then, just to be upfront about it, but on the RPO or CRPO. I think you guys have cited those multi-year commits. When we look at the RPO and the strong growth there. Is there a change in customer behavior? Should we think about that RPO growth as reflecting customers' willingness to consolidate onto Datadog? Is the first question. I have a follow-up on that as well.
Yeah. It would be, not just consolidation. It would be commitment to Datadog. So if, essentially, our pricing is essentially unit-based that has a discount structure based on volume committed to and some, not a lot, of multi-years. So it would mean that clients are committing longer to Datadog. Sometimes that involves consolidation. Sometimes that involves more of the same product they're using. It could be either way, but it does reflect increased long-term commitment from clients to Datadog.
There's no additional incentives when I think about what your go-to-market team is going after. There's no additional discounting to try and drive that behavior today versus where we were six months, a year ago at all.
Yeah. No additional discounting. The discount. The discounting maintains, which is, I would say, similar to what you might see in the software industry, which is it's based on, you know, volume. And there is some based on commitment or term. I think we're, you can see from our gross margins, and you can see from our pricing, which has been stable. We're very disciplined around it. But there's nothing in the compensation system that says, "You get paid one thing for a three-year deal and one for a one-year deal."
Understood. And impressive in the macro too.
Yeah.
I think if I.
Yeah.
Let's shift. Let's cut RPO and CRPO for a second. Let's go towards the glass half empty. I know a lot of people were looking at the billings only growing 21%.
Right. Mm-hmm.
In Q1. Again, why why is this less of a determinant when thinking about h ow the company's performing?
Yeah. So that has to do with the seasonality. So, if you look at billings, if you're just looking through the average, you know, growth over time, you'll see it's around 29%, and revenues were 27%. So what that will demonstrate is that, billings will sort of, move around both sequentially and, and also when it is during the year because our economics are not determined. Our cash flow is affected, but our economics on the revenue side are not affected by when the bill goes out because of the consumption model. So you commit, and you. S o essentially, that moves around based on what happens. It doesn't matter to us whether contracts are sent out, the bills sent out on December 30th or January 7th, but it does affect that variation. So sequentially, you're always gonna see a spike in billing.
We say this all the time in Q4 just because of the contracts commission plans are often aggregates for the year. So there's, you know, a lot of activity, as you would see, clients making commitments for next year. All of that produces higher Q4 billings. And then Q1, there's less of that. And it happens, I think, if you look in our reporting, pretty much every year.
Awesome. If we, I guess, shift gears over to consumption. Right? So 1Q consumption trends were described as improving from Q4 more similar to the strength that you guys were observing in 2Q or 3Q of calendar 2022. Right? So. First question is, was that strength in line or stronger than you guys had anticipated? And how have the consumption trends played out thus far now that we have April in the review?
Well, we essentially have been saying, to back up that. Starting in Q2 of 2022, we began to see clients start to optimize. But optimization takes time. It's a process. So you will see the, you know, carryover from the previous quarters. And then it began to become more intense. The time series indicates so far that it peaked in the second quarter of 2023. Now, we'll see what happens going forward. So that would indicate that you were here. You started to go down, but you didn't go. It doesn't go like this. It goes like this. And then we were flagging the last couple quarters that we saw it start to lessen. And we gave a number of examples, including the most intense optimizers. So that means it went down, and it starts to go back up. So I think when the answer is, you know, was it a surprise?
It was something that we had flagged to everybody that we saw, I think we said the attenuation. We used a lot of words there , of optimization trends or something like that. So it continued, you know, back in that track of recovery. Why? Because we said that we were pressed on by the larger spenders, particularly concentrated in cloud natives but not necessarily only cloud natives. And we said in this quarter that our largest spenders exhibited the most organic growth, which meant that these would be signs that they had gone through optimization, potentially even over-optimized a bit. And now they're sort of back on trend. So that was a compliment, not a press. As far as, so that's what happened in Q1.
As far as April is concerned, again, all of this is so micro that we caution everybody that it's only at a quarter level that we can see really what's happening. Now, April continued the trend of being higher than the previous April because April always has certain things about it. So you compare April to April, and it continued that trend of going up. But again, it's too micro to say anything more than what we said about Q4. Like, we don't know anything more than what we told everybody about the trends in Q1. I meant Q1. Yeah.
Makes sense. Makes sense.
Yeah. Thank you.
I'd like to see if we can develop something with GenAI when we're following your hand. For those gradations to figure out.
See, I'm doing it. I'm trying.
1.5 inches.
Yeah.
If we could quantify that.
Right.
Right?
Yeah. Yeah. I mean, that whole trend of the down and up, I mean, yeah. I don't know.
I think.
You wanted to do something new. He said he wanted to do some new things. So he figured that we didn't have a board, so we'll figure we'll do some curves.
So we have four tailwinds now, right?
Yeah.
We have consolidation, c loud migration, easing optimization, and then GenAI, which we're gonna t ackle more towards the middle to end of this. But out of those four, like, what are you most excited about when thinking about this model in the near -term now? What, where are you thinking about as far as, like, nearest-term drivers if you're trying to think through those four dynamics?
Yeah. I mean, I think the biggest driver in the company would be, the biggest two drivers would be the resumption of what we think is a very long-term trend of modern DevOps. That's what we do. So I think that's the biggest long-term driver. We've now proven it's not gonna be a straight line in one direction. And then the other is one we talked about, which is the expansion of the platform. And we gave a number of metrics around the product attached for the non-three pillars. We gave a metric around products that had been created in the last few years. So those two are essentially the most proximate and, I would say, you know, key drivers that could be complemented. We don't know enough to know the speed by a replatforming or a move towards modern applications that is accelerated by AI.
That could be another factor that complements that thing. We don't know yet. You know, we're optimistic, and we see some activity. So that's another thing that we think could be a growth driver that really hasn't. That's in very early stages right now.
Okay. We've also seen, I guess, this historical, at least over the medium and long -term, this correlation between hyperscaler growth and Datadog. I think one of the things that people were looking at this quarter is that, for whatever reason, that that wasn't there. I'm trying to think through why would there be that lag between c loud hyperscaler growth versus Datadog growth, or when a gain, over the long -term, that catches up, but.
And by the way, this is a convention that, you know, analysts and investors have used to summarize. It's not something that we don't have that, meaning at the core, we have modern workloads that are in the cloud being a driver. That's long-term correlated, but it's not gonna be a perfect match. Why isn't it? First of all, those businesses are much broader. They have lots of things in it, and you'd have to know the parts of it that are related to modern client-facing apps. Also, they may well have—we don't know—but they may well have exposure earlier to AI because they may be monitoring internal apps. I think we have that with the office, you know, assistant, you know, all of these things that we don't really attach to. We were attached to production, client-facing.
So there could be mismatch there. There could be mismatch between the time that, and I think you'll see that on the way down, that the mismatch between the amount, between putting host in place and then getting monitoring in place. So there's tons of reasons why, over, you know, a micro time, it's not going to match. But over the long -term, the movement of applications to the cloud, and delivering them in that way is a long-term driver in the business.
Have we seen a shift at all when a customer decides to migrate to the cloud? Historically, that decision to invest in observability lags. Is customer behavior changing, that cloud migration is now being more closely tethered to an observability spend, or is there still that lag as far as how customers behave?
No, it's still a follow-on because. If you haven't basically secured the cloud capacity and built the application, there's nothing to monitor. And there's no revenues for Datadog until there's an application running in production on the cloud for the most part. So yes, there's always gonna be, w e always called it a follow-on, a quick follow-on. Yeah. So, it's never. It can't be because you have to have and secure the host before you put the applications on, and then we monitor them. So there's always gonna be a timing mismatch.
Okay. On optimization, I know, again, big, big point of focus last year, e ven this year, t hings continue to improve. I guess, w hat are you seeing under the hood that gives you signs, or reason for optimism as far as these optimization headwinds, abating? Or things are starting to shake free?
Yeah. I mean, you have the trend that we mentioned of the most intense optimizers growing in a more programmatic way. That indicates they're getting back to the business of growing applications rather than, you know, cost management. So you have that. Then, if you look at the cohorts, particularly the large cohorts, you see this movement that continues. I would say, investors shouldn't expect that we go back to the bubble or, you know, caffeinated days where things are being flung around. I mean, you still have, at this point, you still have a cautious, you know, cost-conscious environment. It's just getting back to more sort of normal business practices of evaluating priority of projects.
So I think we have, you know, the underpinnings of, you know, back to sort of normal-type behavior as evidenced by what I just mentioned of the organic growth rate of those types of customers. At the same time, you know, given that the Fed has kept rates high, that there's still, you know, risk factors out there in the market, we still have, you know, some headwinds in the economy that have not abated completely.
Okay. With AI, t he company has also given us color as far as composition of ARR. That's coming from next-gen AI customers.
Right.
It was 3.5%.
Right.
Most recent quarter. So, can you provide some more color as far as what modules, w hat products are those next-gen AI use cases a re shifting towards within that Datadog platform?
Definitely. It's the same motion that you would have across our customer base, meaning usually the infrastructure and then, you know, plus APM and/or logs, is the, you know, core motion. And the reason is that what they're doing is they're offering a, you know, modern cloud service to their customers that has to have significant uptime and, you know, has the same sort of characteristics of delivery as, you know, our core cloud natives. So they're adopting it in a similar pattern in terms of the product mix and used in the same ways as the rest of our customer base.
Got it. If I think about the product roadmap, during the Investor Day, you guys gave some stats. Cloud Security Management 8% penetrated within infrastructure. AppSec 14%. Cloud SIEM 19%. What can you tell us about the customer cohort w ho has been early to deploy these solutions? And what are you guys doing to drive deeper penetration of those products?
Yeah. Yeah. Good question. So the products, you know, are still in build, but, like, our other products, as there's, you know, more functionality and more use case, we're able to market it and and and put it out there in front of customers more aggressively. So at the core, it is being used by DevSecOps. So it's been used by our traditional customer base. It's not, right now, a centralized CISO type of sale or use. So what that means is, our customer base, based on their behavior in the platform, wanna see more signals in the platform on what's going on with the application in real -time. And so that's the way the product has been designed, and that's who are the early adopters. So they would be cloud natives.
They would tend to be places that are more nimble and potentially have the CISO or the security function closer to the DevOps. So it really is an add-on to our normal DevOps or DevSecOps motion. And what we did most recently in order to try, it's sort of a marketing or packaging, is to say, "Okay, you already have 'cause all the customers already have our infrastructure or our APM, is you add this on as a module, and that's the bundles we talked about." And so that's a way of trying to attach this in, you know, in a way of this is another piece of that. And that's, you know, early days, but shown signs of success. And that's where we're currently marketing the product.
The company has also evolved its pricing and gone through iterations on the different. Mechanisms that you guys look at. One thing is, I think, Cloud SIEM pricing. The price changed back in December. Can you walk us through, like, what inspired that change?
Definitely. It's very similar to what we've done in a lot of our products, which we develop it with a client. We see how clients are using it. We float pricing, and we see how it's used. And in that case, the learning was that the way both the product pricing and functionality need to be changed because in the security, the retention had to be longer because of how you use a SIEM. And there's certain functionality in the organization of the work that needed to be there. So this is how we've developed all the products over time, which is we've often floated a price and then changed it over time when we see what the trigger is. And in this case, we learned from customers. We learned how they were using it.
We changed the pricing, as we always do, to align more with customer use and the functionality and our learnings to be, again, aligned with how customers gain utility out of the product.
Okay.
It's good. We're optimistic. We think that in the SIEM, we think that essentially, we made some I would say there were learnings and mistakes, right? So we used what we knew already and then learned. But there's been a lot of investment in the past year or so in the product itself and in the pricing. And we'll report, but we think we're in a place where we can, you know, be more aggressive in selling Cloud SIEM.
What about this newer product? It's still unlimited availability. You guys gave the great stat on the earnings call. It's already despite being unlimited. Availability, Flex Logs is already north of $10 million.
Right.
In ARR.
Yes.
Right? So just for perspective, have you ever had a product at that scale and still be in limited availability? I'm just trying to think about t he hunger for the solution that you have right now.
It's interesting. I don't know the answer to that.
Okay.
We certainly have had very strong ramps of products before. You know, but what that, I think, indicates is that we essentially learned from clients on how they use their logs and attempted and did re-architect the pricing and delivery to separate out storage and compute, etc. And the reason why that ramped is that limited availability is to a set of clients who sort of were most correlated with having their log bill or their log use moving in directions that may not have been optimal. So they, it's great. They adopted this. So that's, I think, the reason. We'll learn more as we go to general availability and see this with more customers, the overall fact.
I think the learnings and the reason we said that is that the customers that, you know, that was really sort of the most appropriate for really liked it and really found utility in it. We're optimistic about the future of the Flex Logs.
Awesome. Awesome. And IT Event Management was another one.
Yeah.
Right? So that was just launched last week.
Yeah.
If I'm not mistaken, it's priced on a per-event basis. What has the early feedback been on the offering, and which I guess, when I think about the third-party tools, are there certain o nes where customers are drawing you to as far as how that integrates with other players out there?
Yeah. Of course, with a one-week in the market, it's difficult to.
Big week.
It's difficult to draw, you know, a lot of conclusions. I would call it early. But it's like every other product. We essentially looked at clients and how they, you know, creating value. So we've always been, and one of the reasons why clients want everything in this single platform and love Datadog is because we sort of make order out of the chaos of all these signals. And this is another attempt to do that. This is, I would say, not a consolidation play as much as a platform enhancement play for the use of Datadog driving more use into the platform and because it is trying to organize everything that comes in and prioritize it and flow it into the right place.
So this is not like a lot of people ask us, "Oh, what about, you know, ServiceNow or whatever?" This is about having the platform be a bigger portion of our clients' workday and that they get, you know, a lot of utility out of it. It's too early to know how this is gonna manifest itself, but this was based on feedback from clients. And so they seem excited that we're doing it. But again, one week does not a product make.
I think with the IT Event Management, you guys have also been quick to point out that it is specifically focused on the DevOps persona, which you have been.
Definitely.
Entertaining since existence.
Exactly. Exactly. So I think, there's a lot of you know, and there's great companies out there that have, you know, done this type of workflow for different personas. So far, what we've said is that this is about our users. And and it could be that, you know, it gets to be a greatly monetized SKU. And it could be also that it creates more love for the product and the platform and helps clients, you know, use it more. Everything that we're thinking and I think it's when you go back to Ollie and Amit and others and the thinking, all about, like, how a client uses the product and making sure that this is something that they're in all day, every day in their work life.
Yeah.
Yeah.
Yeah. Bits AI was announced with the quarterly release as well.
Yeah.
And so there's probably two things I wanna touch on here. First, like, what is the value that Bits AI is providing t hat Datadog solutions didn't have that you you're now unlocking with this new capability?
Yeah. It's just very similar. It's the product the platform becomes more useful. So if you can essentially use AI either to interact with the platform or, you know, as this evolves, understand more about what's happening in your applications, it means quicker remediation timeframe. So again, this is all sort of based on client feedback, but it's very similar theme, which is to have a client be able to do their job more efficiently and spend more time in the platform.
Can you help us think about the AI technologies as well? Like, I feel like every vendor is trying to go through, pricing. How do you price this technology? What kind of, I guess, what do you extract from a monetization standpoint versus the value yo u deliver? So how is it you guys are weighing that internally on your side, right?
We don't know.
No?
I mean, we're going through it. We're spending time. We don't know. I think it's easier for us to first think about these tool vendors we talked about. They are monetizing AI in similar ways to the way we've monetized clients. The next thing is a little harder to think about, but we are, you know, we're getting data points. That was the use of the integrations. So that means as applications are essentially being developed and using more integrations, and there's more work, we would think we're gonna monetize in the same ways on infrastructure, hosts, logs, etc. And then there's another thing, which is, you know, are we gonna see quicker and more aggressive modern application development? We think so. But again, these are all too early.
So, we, like a lot of customers, you know, are thinking about this but don't have an answer to your question of how we would monetize.
Yeah. Yeah. And I know you guys gave us the metric on the earnings call too. Something like 2,000 of your customers a re using those AI integrations today.
Yeah. Yeah. And that's a, you know, that's a good. We're trying to indicate through these metrics that there's activity. But also hold down the euphoria because, you know, we're all—it's a process. And I think Ollie said right up front that this is gonna take some time. We're gonna learn along the way, and we don't quite know how it's gonna go.
Mm-hmm. In the honor of those expectations, right, I think. One of the things, and we're all just doing our monkey math, but if you look over the most recent three quarters, what we're doing on our side i s you guys have outperformed your guide on revenue by $20 million?
Right.
Over the last three quarters. And so when we look at Q2 in the guide that we have, t here's actually an implied decel. Can you help us think why there is that implied decel? Are we stuck at $20 million? I mean, it's a h igh-quality problem to have. We're sure my company's beat revenue by $20 million.
Right.
But can that actually go on o ver time?https://editor.inflexiontranscribe.com/static/media/icon-play.39003f0a4baacd961cc853b952165cc5.svg
Yeah. Well, I think first of all, you have to understand that how we, we always do our guidance, which is we always take the drivers and discount them. So there's always gonna be, you know, a decel, or very largely gonna be a decel. So that's, you know, a good part of what we're doing here. You know, the math of continuing the trend produces numbers higher than that, but we've been very clear to everybody that what we do, 'cause we can't control the usage, we can have good ideas about what's happening, is that we take those trends and discount them. So that's the main reason. We haven't changed that methodology since we've been a public company of discounting those trends, when we provide guidance.
Right. That was probably one of the d ominant topics that we got j ust given the net new ARR generation was the strongest i n Q1 versus going back to 4Q 2021. I think you guys had cited.
Yeah. Definitely. Definitely. Yeah. Yeah. Exactly.
And then the other thing is y ou guys are within earshot, if I look out over the next couple of years, of $1 billion in cash flow, y ou already have a significant amount on the sheet.
Mm-hmm. Definitely.
Does that in any way change your thought as a CFO as far as use of capital and where you wanna deploy that? Or can you help us think about how you're force-ranking where you're making your investments?
Yeah. I think, you know, it's a lot but not a lot if you're able to identify a strategic M&A or something. You know, it's like, yes, it looks like a lot, but it isn't a lot when, you know, when you think about acquiring a quality company that's larger than we have. Not saying we're gonna do that, but we want the flexibility to be able to consider that. And so I don't think we're at the point now where we're into additional capital planning, you know, promises to the street. But, you know, we think it's good to have that flexibility for strategic and investment purposes and are happy with where we are.
Mm-hmm. And I have more questions on my side. I did wanna be true to my word. Does anyone have any questions out there? Otherwise, happy to keep going. We do have a microphone in the back. All right. We'll keep going. Competition, just coming off the product roadmap questions. But, there's been a lot made out of, well, we were talking about Flex Logs as an example, right? Is there any change in competitive dynamics given some of the M&A that's taken place in the observability market?
Mm-hmm. Yeah. The continuation of what we've seen, which is that, you know, a number of companies, which we have been successful competing with and consolidating, you know, have decided to go private or be acquired. So essentially, what's been going on, if you look at, you know, our growth, etc., is that we've been winning market share. And I think, we talked a little bit on the earnings call that some of those companies, you know, tried to be more aggressive in pricing, and it didn't work because we continued to consolidate. So it's largely because the purchase is based on value or the product features. And so we have seen the beginnings of signs of sort of more discipline from those. Now, they maybe have debt or have gone private or things like that.
This is a continuation of a trend that we, you know, have seen going on for some time. And we'll have to see whether that accelerates that trend or maintains that trend or what?
With those companies being acquired or going private a s well, does that give you an opportunity from a talent perspective? 'Cause I know you guys continue t o aggressively invest in your headcount. Are you seeing more churn out of those companies coming towards you, or is it more of the same? Or do you just not want those folks?
Well, you know, I think there it can go both ways, right? So, you know, when you've done things in a certain way that has won the market, you may not want, you know, away. But they're good people everywhere. So of course, we recruit. Yes, the talent market, I would say, is still competitive in a number of ways, particularly in R&D, AI, etc., but it has, you know, abated. I think it is an easier market. And, you know, we continue to recruit from, you know, a variety of sources, including companies that were competitors or companies that are specialists in AI or other software companies. So I think it's all part of the equation of not having as competitive labor market across the board as we had, you know, two or three years ago.
Before the hiring plans that you guys have this year. Have you given any more color regarding which departments or specific teams you're looking to build out within Datadog as you think about the future of the company?
I think we gave color on, you know, a little bit on the call, which is we continue to have a very strong pipeline of R&D projects. So we are continuing to hire there, both in terms of the platform or, you know, growing the platform, the integrations, and some of the new product areas that we've talked about, security or cloud cost, etc., or event management. So we are continuing programmatically to grow there in sales and marketing, also, in some of the newer markets, in some you know, in places we really haven't built out to scale like Fed and government, in channels and things like that. So I would say, you know, it's a pro rata, you know, investment, broadly speaking, between R&D and sales and marketing, that we're continuing, all sort of bottoms up.
It's based on, you know, territories that have targets. You know, it's all principled in that way.
Right. Is it something everyone's watching as far as t hat correlation to ARR growth?
Yeah. Definitely.
Okay.
We have over, I think that we again, just like the market, we didn't, and we said this all along, we haven't been able, it's impossible to do with, like, a straight line. So we said, you know, sometimes the ARR growth has gone quite a bit higher than the talent acquisition. Last year, we were more conservative. We pulled back. Now, I think we have more confidence in and are investing more. And I think the right way to look at it is on a weighted average basis. When you look at it, are you sort of moving the talent acquisition to be at or slightly below the ARR growth, which results in, you know, upticking margins, which we've delivered over the years?
Yeah. Maybe last question here, but just given how expansive the portfolio of solutions has become, has the ramp on those new hires in the sales and marketing organization remained relatively consistent, or is there—'cause again, I'm trying to think about h ow you swallow all those different products?
Definitely.
From the market side.
I would say it takes, you know, up to a year to ramp an enterprise for a commercial or SMB, maybe six months. I think the investments we've been making have been on complementary functions, sales engineering, technical account, product marketing, to help them to understand the whole products. But it's a challenge. I mean, when as the products we get broader, you do have to. It's not a specialist sales team, we think, 'cause we're still selling to DevOps, but it does involve product experts that help them do their job. And so we've been investing in that quite rapidly for a number of years.
Terrific outcome.
Yeah.
With that, we'll leave it there. Thank you to everyone for joining.