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Datadog Stock Surges 39%: Its CEO Recounts When The Company Was An Underdog In New York

Shares of New York-based Datadog rose 39% to close at $37.55 after opening at $40.35 in the cloud company’s market debut Thursday. The successful IPO cements Datadog’s position as an East Coast counterweight to Silicon Valley’s dominance of the enterprise software realm.

“Initially when we started fundraising for Datadog, it was really not that easy,” CEO Olivier Pomel told Forbes after the market closed Thursday. “We were not based where most of the companies were based, so it was hard to get trust from investors on the West Coast. And the investors in New York were not really specialized in the type of company we were building.”

Pomel said this underdog tale worked to the advantage of Datadog. By relying on small checks and angel investors at first, the company was forced to build an efficient business, he said. That’s become a huge asset to the nine-year-old company as it ballooned to a $10.9 billion valuation at the end of Thursday. It reported a net loss of $10.8 million, after posting a $2.6 million loss the year prior—good numbers for a fast-growing company of its stature.

Higher net losses usually accompany recent enterprise tech IPOs with comparable revenue figures, such as with Medallia ($82 million), Dynatrace ($116 million) and Crowdstrike ($140 million). “One thing investors reacted to was the fact that we run a healthy business from a profitability perspective,” Pomel said.

Today In: Innovation

“What helped the most by being in New York was that we’re a little bit closer to customers—there’s more of them here. And, you’re out of the echo chamber in the Silicon Valley so here you can get ahead on what the customers think,” he said. One early investment came from Index Ventures, which has backed Datadog beginning with the Series A funding round. Shardul Shah, a partner at the firm who also sits on Datadog’s board, says he bought in because of Pomel’s “relentless focus on delivering customer value from the very beginning.”

The successes of MongoDB and now Datadog could spur the growth of an enterprise ecosystem in New York. Prior to its market debut, Datadog had raised $147.9 million on what Pitchbook estimates as a $640 million valuation. The IPO is New York’s largest venture capital-backed tech IPO in two decades, according to Renaissance Capital.

Now trading on Nasdaq under the “DDOG” ticker, the company priced 24 million shares at $27 on Wednesday. That’s higher than the $24-to-$26 estimated IPO price listed in its latest filing to the Securities and Exchange Commission, which was already a huge boost from the $19-to-$22 range the company originally set. At its IPO price, Datadog raised $648 million to bring its valuation to $7.8 billion. Pomel said the added cash on hand will offer the company the flexibility to continue making acquisitions. He said he’s happy with Datadog’s acquisitions so far, including application tester Madumbo.

At Datadog’s opening stock price, CEO Olivier Pomel was on the cusp of billionaire status. Forbes calculates that the stock would need to surpass about $43 per share for Pomel’s net worth to cross the $1 billion mark—at the stock’s high point of $41.44, Pomel was $35 million short. After the stock price declined slightly over the course of Thursday, Pomel’s net worth settled at $874 million at the time of market close, but that doesn’t seem to bother him: “The stock, it’s up a good amount, but not too much. I think that’s what we were looking for.”

Datadog offers a cloud analytics platform that also provides log management and monitors infrastructure and application performance. Its software is primarily used by IT and developer teams and cuts across industries—it boasts customers including Samsung, 21st Century Fox, the University of Pennsylvania and the Washington Post. In its S-1, the company identified IT operations management as its primary opportunity market. Research firm Gartner predicts the market will be worth $37 billion by 2023.

The IPO reflects continued investor demand for cloud analytics and monitoring. In August alone, application performance management company Dynatrace’s stock jumped 49% in its public debut, while cloud monitoring vendor SignalFx was acquired by Splunk for more than $1 billion. In its S-1 filing, Datadog lists both Dynatrace and Splunk as direct competitors. The company also counts IBM, Microsoft, Cisco, New Relic and Amazon as rivals across fields such as infrastructure monitoring, application performance management and cloud monitoring.

Datadog jumped to No. 5 on this year’s Forbes Cloud 100 list, which was released last week, up from the No. 19 spot in 2018. As of last Wednesday, half of last year’s top 20 sold or went public, with eight taking the latter route amid a busy couple of months for cloud IPOs. Although most of these stocks—such as Zoom, Slack and Crowdstrike—had strong public debuts, some including Slack and Eventbrite have failed to maintain this momentum. Stripe, the No. 1 company in 2018 and 2019, announced a new funding round Thursday that brings its valuation up to $35 billion.

Datadog filed with the SEC in anticipation of its IPO at the end of August. Revenue increased 97% to $198 million in 2018, according to its S-1 filing. The cloud company reportedly rejected an eleventh-hour acquisition offer from Cisco at a figure “significantly higher” than $7 billion, according to Bloomberg. The move would have paralleled Cisco’s 2017 acquisition of AppDynamics for $3.7 billion, just two nights prior to the application performance management company’s IPO.

This article was updated to include the closing stock price, additional context on finances and comments from Pomel and Shah.

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I am a San Francisco-based assistant editor for technology and innovation. As my beat, I cover Juul Labs. I also write other general tech news. Previously, I made stops at The Ringer and the Raleigh News & Observer. I graduated in 2019 from Duke University, where I spent time as news editor for The Chronicle, the university’s independent news organization.

Source: Datadog Stock Surges 39%: Its CEO Recounts When The Company Was An Underdog In New York

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The Watch List: Jonathan Lehr came on The Watch List to discuss what the Datadog IPO means for NYC’s enterprise tech ecosystem.

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The Yield Curve Just Inverted, Putting The Chance Of A Recession At 30%

The interest rate on the U.S. Treasury 10-year bond just fell below the rate on the 3-month bill in response to the Fed’s March announcement. This is called yield curve inversion as defined by Arturo Estrella and Frederic Mishkin. It implies a 25%-30% probability of a recession on a 12-month view. Their research can be found here.

As economic relationships go, the yield curve has a good track record. You can see the data below going back to 1982. Per the chart, using this series over recent history, the yield curve inverts before a recession reliably with no false positives. An impressive record. The blue line shows the spread between 10-year and 3-month interest rates. The black line is the zero bound. The shaded grey periods are historical recessions. Note that there is a lagged relationship here, recession historically occurs 6-18 months after inversion. So today’s yield curve suggests a fair chance of a 2019-2020 recession.

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Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity

Federal Reserve Bank of St. Louis

Risks Of Interpretation

Nonetheless, there are some risks with this approach. The first is we’re looking at a limited run of data. There are only a few decades in the sample and a handful of recessions. We’re making a forecast here based on less than ten recessionary events, per the initial research and subsequent out-of-sample data. Plus there are countless pieces of economic data out there. Combining two of them and creating a good recession forecast is possibly due to data mining. For example Tyler Vigen’s site illustrates the problem, showing how correlations can be found between many things that have little basis in reality, such as an apparently strong relationship between mozzarella cheese consumption and sociology degrees. So even though the yield curve relationship looks robust, it has been plucked from hundreds of other relationships that could exist, but don’t look as meaningful. The human brain is adept at creating patterns where none exist.

Also, a 25-30% chance of recession is not that high. Going back from 1960 to 2018 we have 59 years of data. We’ve had U.S. recessions during 16 of those years. So even before any more sophisticated forecasting methods, your chance of being in a recession in any given year are 27%. There’s some auto-correlation there too, as recession years come in clusters, but still, saying the chance of recession coming within a year or so is around one in four isn’t that different from what history tells us regardless of what the economy is doing. Of course, even at a 30% probability the chances are roughly twice as high that a recession does not occur.

Also, the Federal Reserve (Fed) has a key target of avoiding a recession in order to maintain full employment. This one of their key policy targets. The Fed are quite capable of learning. The increasing emphasis on the yield curve has not gone unnoticed by the Fed. In fact, the initial research here was published by the New York Fed itself. So unlike in the past, the Fed may be able to take corrective action, which was exactly what Chairman Powell was looking to stress in the Fed’s March meeting release. The Fed’s challenge is obvious but not simple, a few quarters ago the markets were spooked by a potential stack of rate hikes in 2019 that could risk recession, so the Fed changed course. Yet, in doing so they have helped create an inverted yield curve, introducing another set of recessionary fears.

However, the risk here is the markets are capable of learning too, and there is some evidence that recessions are self-fulfilling, meaning that if enough decision makers expect a recession they may then take the very actions actions, such as temporarily cutting back on spending, that cause a recession to happen. In that light, yield curve inversion gaining more attention is bad news if it causes people to anticipate a recession, which then makes one more likely.

So yield curve inversion is not a positive sign for markets, but we may be overstating its importance. Also if the indicator is to be believed, we should watch out not just for inversion, but when the 3-month yield falls 1% or more below then 10-year yield, then our confidence in a recession around the corner should be quite a bit higher.

Articles educational only, not intended as investment advice.

Follow @simonwmoore on Twitter. Simon is Chief Investment Officer at Moola, and author of Digital Wealth (2015) and Strategic Project Portfolio Management (2009).

Source: The Yield Curve Just Inverted, Putting The Chance Of A Recession At 30%

The Quickly Changing Global Oil Markets – Dan Eberhart

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How quickly things can change in oil markets. A month ago the industry was fixated on Iran sanctions, possible supply shortages and a lack of global spare production capacity  issues that drove benchmark Brent oil prices over $86 a barrel in early October. Fast forward to now: Brent is down 20% to around $66 a barrel while US benchmark West Texas Intermediate (WTI) is at about $56 a barrel. Saudi Arabia is calling for 1 million barrels per day of production cuts from its OPEC peers and non-OPEC allies, led by Russia, from 2019. So what’s changed? A lot…………

Read more: https://www.forbes.com/sites/daneberhart/2018/11/16/the-quickly-changing-global-oil-markets/#1d36b9863cb2

 

 

 

 

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