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Mostly Borrowed Ideas
Mostly Borrowed Ideas

@borrowed_ideas

11 tweets 1 reads Jan 29, 2023
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Despite the material drawdown in software this year, it is surprising to me the kind of assumptions I still have to believe to make decent return.
Take $DDOG for example which is widely loved.
Many bulls cite companies such as $DDOG or $CRWD as the next "Salesforce". So, I was curious to look back and see what happened with $CRM.
CRM numbers in '09 is more or less similar to DDOG in '21 except Opex per headcount which understandably crept up over time.
Many bulls cite companies such as $DDOG or $CRWD as the next "Salesforce". So, I was curious to look...
Nobody really knows how big or profitable DDOG will be in 2030. So, let's look at what happened to CRM 9 years after FY'09.
Let's start with good news.
CRM market cap was almost 19x from Jan'09 to Dec'17.
Nobody really knows how big or profitable DDOG will be in 2030. So, let's look at what happened to C...
But that's market cap. Stock was up ~11x.
Diluted shares outstanding FY'09: 501 Mn
Diluted shares outstanding FY'18: 700 Mn
SBC matters (see image).
~11x is still pretty good, so hard to complain too much.
But that's market cap. Stock was up ~11x. Diluted shares outstanding FY'09: 501 Mn Diluted shares o...
But that's market cap. Stock was up ~11x. Diluted shares outstanding FY'09: 501 Mn Diluted shares o...
So, what was CRM's operating performance in 9 years since FY'09?
In FY'18, CRM posted ~$7.8 Bn Gross Profit (GP).
To generate this GP, CRM spent $7.3 Bn in opex with ~29k employees. Avg. opex per headcount was ~$270k.
When I was modeling DDOG for 2030, I consciously decided to be slightly "generous" in all of these assumptions.
In *2030*, I modeled DDOG
GP $8.6 Bn
Opex $7.2 Bn
# of employees ~26k
Avg. Opex per headcount ~$300k (same as it was in 2021)
Now, let's say you want a double from here to 2030 in DDOG. Current market cap is ~$25 Bn, so we need $50 Bn market cap in 2030.
As you can see, entry prices of CRM (~$4 Bn in Jan'09; was $8-10 Bn in much of '08-'10) vs DDOG are VERY different even though operating # are similar
Now, let's say you want a double from here to 2030 in DDOG. Current market cap is ~$25 Bn, so we nee...
Based on earlier assumptions, $50 Bn Enterprise Value (EV) implies ~35x 2030 GAAP EBIT.
But that's EV (or market cap to keep things simple).
For the stock to double, market cap probably needs to be even higher as DDOG mentioned they're targeting ~3-5% dilution each year.
btw, CRM didn't get to ~$8 Bn gross profit organically. They spent $7.3 Bn in cash acquisitions between FY'09-FY'18.
And 10-year treasury yield in 2017 was ~2.0-2.5%. If it were ~4% as it is today, CRM's market cap would obviously be lower then.
Even a replication of $CRM, which is no easy feat, may mean somewhat lackluster return for DDOG shareholders. You need much better than CRM results.
~35x *2030* GAAP EBIT for not even a double? Well, you can pay ~35x *NTM* AWS GAAP EBIT to buy the whole $AMZN today
While this thread is mostly about numbers, I discussed more qualitative+quantitative aspects of $DDOG in my Deep Dive here:
mbi-deepdives.com
www.mbi-deepdives.com

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