There’s a lot going on within this product suite and I think understanding the basics is important. This recurring section will be review for some. If it’s not for you, let’s learn:

This is a dominant player in the data observability space. Observability simply refers to the practice of monitoring an entire asset ecosystem to track issues, vulnerabilities and performance. Other players within this area include the hyper-scalers, Splunk, Elastic, CrowdStrike and many more. Datadog splits its observability niche into 3 smaller buckets: infrastructure monitoring, log management and Application Performance Monitoring (APM).

Infrastructure monitoring: provides a holistic view of assets like servers and networks. It automates the collection of traffic and overall usage insights. That means it can more expediently fix and uncover infrastructure issues. This can also help clients and their other vendors uncover where compute capacity is being suboptimally distributed. Fixing those inefficiencies cuts costs.

Log management: collects and manages logs or “timestamped records of events.” This also facilitates faster issue remediation and optimization of performance. This product routinely supports infrastructure monitoring, BUT there’s a key difference between the two. Log management handles event-based data like customer service interactions, while infrastructure monitoring (as the name indicates) handles infrastructure-based metrics.

Application Performance Monitoring (APM): tracks app performance and uncovers/prioritizes performance issues to be remediated.

There’s also a newer, related form of Datadog monitoring called Digital Experience Monitoring. It’s exactly what it sounds like. This product includes real-time user monitoring (RUM) to track precise, observed interactions, and also Datadog Synthetics, which is similar to RUM, but tracks a simulation of expected interactions. Datadog delivers detailed churn analysis, engagement metrics and more from these tools. It also provides mobile app and feature testing, as well as actionable user journey visualization reports.

These four product categories, which frequently work together, form its “unified platform.” Other products to know within this overarching offering include Flex Logs. These offer a cost effective means to store and retain large batches of logs by separating storage and query usage. This makes it ideal for long term data storage and regulatory compliance. Separation also unleashes more data scalability, query customization and cost optimization. Conversely, querying from a flex log is slower than standard logs. That makes Flex Logs better suited for lower priority data.

Because Datadog already handles network viability, security is a wonderfully relevant growth adjacency. Products like Cloud Infrastructure Entitlement Management (CIEM) for example, ensure identity controls are strict and minimum access permissibility is in place. There’s a lot of competition with configuration-based cloud tools like this one, but Datadog is no slouch. CIEM diminishes risk of identity attacks in a cloud environment. Its Security Information and Event Management (SIEM) product allows for “long term data log visualization for security investigations.” Most recently, it added agentless environment scanning (no security agent installation needed) to match with its agent-based product. It also debuted data security and code security tools to detect and prioritize source code blunders as it moves “further left” on the DevSecOps scale towards developers. 

It also offers a host of products within Cloud Service management. For example, its Kubernetes Autoscaling tool handles resource usage and expansion optimization. It pulls from extensive usage data to tell customers where they can save on compute capacity and other areas. This is part of its cloud service management push.”

But… this intro would not be complete without its GenAI product work. As we’ll explore, Datadog should thrive after the initial infrastructure GenAI boom. This isn’t Nvidia or Broadcom; they don’t sell GPUs or networking equipment. That hardware foundation is being laid. It’s positioning its portfolio accordingly for future model and app monetization. Toto is the name of its first foundational large language model (FLLM) and Bits AI is its copilot. So far, this can summarize incidents and conversationally field questions. Much more is coming. And unsurprisingly, it also tweaked and configured its core products to cater to LLM observability.

The billings metric is related to things like timing of service and invoices and can fluctuate materially on a quarterly basis. This quarter, timing and a decrease in average billings duration Y/Y mightily impacted Y/Y growth. Without these lumpy headwinds, growth would have been somewhere around 25% Y/Y. Remaining performance obligations (RPO) also rose 26% Y/Y.

OpEx rose by 21% Y/Y as expected due to telegraphed headcount growth to support demand.

“Overall, we continue to see no change to the multiyear trend towards digital transformation and cloud migration, which we continue to believe are still in early days.”

CEO Oliver Pomel

DDOG EPS is expected to grow by 26% this year, 17% next year and 24% the following year.

Interest in DDOG’s GenAI suite “continues to rise.” It’s seeing rapid app-level experimentation, which will eventually mean broad-scaled deployment. That deployment of high performance computing apps, with far more data and context to monitor vs. general compute apps, will be great for Datadog. Again, app monetization will come after hardware monetization and that is where DDOG will win. It’s a similar idea as MongoDB, Snowflake and others.

Still, it already is enjoying 6% of total ARR from GenAI customers and these customers did add 4 points to revenue growth vs. 2 points Y/Y. Not quite an Azure or Palantir level impact, but still really good. So clearly there’s already some real financial meat here. When digging in, that is coming from its presence within the model layer of GenAI. This positioning isn’t quite as pervasive as it should be within the app layer, but it is still compelling.

Its LLM observability tool is arguably off to the best start among its GenAI services. Hundreds of customers are now using this, with paying customers routinely “cutting time spent to investigate LLM latency, errors and quality from days or hours to minutes.” This is a wonderful bridge to app-level monetization that can allow DDOG to join the party here before most of its success will be enjoyed. And encouragingly, LLM observability is often being used with its APM offering to show you how directly model-level monetization can eventually feed into app-level profit.

It’s also worth noting that all hyperscalers have observability tools and all of them are crafting these tools for LLMs – either directly, through partners or both. Encouragingly, DDOG signed a large deal with a hyper-scaler for LLM observability. Cloud Kings are embracing this company’s substitute product over their own.

All in all, 3,000 customers are using a DDOG GenAI integration vs. 2,500 Q/Q and 2,000 2 quarters ago. Not only does this point to more usage, but also more data to train Toto and its other offerings.

Datadog now has $10 million ARR for 15 of its 23 total products. Broken record alert: secure platforms drive vendor consolidation, broader interoperability, lower cost and better outcomes. The business environment has not improved Q/Q. There’s still some budget hesitancy being offset by cloud migration urgency to yield an average but not amazing backdrop. Platformization is what is cutting through this noise and allowing for the outperforming results. Usage growth rose Y/Y and Q/Q, with gains sharpest among its largest customers. Gross revenue retention remains somewhere between 95%-99% and net revenue retention improved Y/Y and Q/Q.

Nothing paints this picture of continued platform momentum more clearly than some large wins:

Datadog announced a new Cloud Service Management product called “OnCall.” It combines ecosystem monitoring, alerting (or “paging” as it's called in this sector) and incident response all into one offering. This means more context and faster resolution. When there’s a cloud hygiene issue, for example, this product will send prioritized, ranked alerts. Traction for this product in early availability was called “very strong.” It’s even already becoming a requested tool for top-of-funnel new logo wins.

Strong quarter. Billings duration is not a structural issue and so the sharp billings miss is not overly concerning to an innocent bystander like myself. What is structural? Continued rapid top-line, margin-accretive compounding within a sector offering miles of additional growth runway. The balance sheet is beautiful and is a powerful weapon, as the M&A environment probably becomes more favorable in the coming quarters. This team’s GenAI monetization (outside of hardware) has been better than most. Really good.

I’ll post detailed reviews on both of these Saturday.

Notably, the lumpy election advertising impact is shrinking as TTD’s business continues to scale. It was only a low single digit % of spend this quarter, vs. around 5% in 2020. More advertisers also paused campaigns this time around to distance themselves from this rather noisy cycle. They will come back in Q1 2025. This is all good news for 2025 growth comps.

EBITDA guidance implies several points of Y/Y margin contraction. This is related to more investments in thriving expansion markets and investing in its new experiences business. It anticipates these investments carrying into 2025, but reminded us that its core business doesn’t require much maintenance. It will continue to print cash despite this.

Airbnb GAAP EPS is expected to fall by 43% this year and rise by 12% next year. EBITDA is expected to grow by 7% this year and by 12% next year.

Last quarter, Airbnb warned investors about slowing growth in the USA. Booking lead times were shrinking as people became less willing to incur expenses well in advance of service. Last-minute bookings health remained strong, to hint at this being more macro-anxiety than macro-weakness. Throughout Q3, NEB growth accelerated and lead times normalized. This was true for existing customers but especially for younger, first-time bookers. Good news. Notably, its app refresh continues to deliver desired results. Nights booked through it rose 18% Y/Y (vs. 23% Y/Y last quarter) to again outpace overall expansion. This now represents 58% of total NEB vs. 53% Y/Y.

By geography, North American growth was the most healthy for non-urban destinations and larger groups. Its previous introduction of group chats in the app is working well. Average daily rate (ADR) did rise 3% Y/Y, but only rose by 1% Y/Y excluding foreign exchange (FX). In Europe, nights books growth accelerated Q/Q thanks to the Olympics. It reeled in 35% Y/Y growth in Paris volume, as it took advantage of the events. ADR rose 3% Y/Y on an FX neutral (FXN) basis and 6% overall. Latin America and Asia Pacific continue to be its best markets. Nights booked growth for the two regions was 15% Y/Y and 19% Y/Y respectively. The China recovery was again called “gradual.” No big updates there.

During the quarter, Airbnb debuted the Co-Host network across the rest of its markets. It was already available in places like France, where the incremental growth contribution has been solid. This offers a base of professional, local hosts to hire for managing listings and reservations. These folks provide hands-on support to take the headache out of offering availability for both individual and professional hosts. To me, this is highly compelling. It should greatly diminish the fraction associated with people being willing to list their real estate. That should support more supply growth, and demand always follows. There are already 10,000 co-hosts available to choose from, with 10,000 more applicants that could soon join the fold. These professionals should also require very little to no training. 73% of them are already Superhosts and 84% are involved in Airbnb’s highest quality listings. This should be a relatively seamless process for owners to get going.

Airbnb has now removed 300,000 low quality listings from its network and it has cut cancellation rates by 30% Y/Y through stricter hosting requirements. This is likely why its net promoter score rose Y/Y and customer issue rates fell. Despite these removals, supply growth remained over 10% Y/Y and outpaced demand growth.

For guests, Airbnb added app welcome tours to improve navigability. It debuted suggested destinations that are now personalized based on search history and activity. Finally, it added discount and special offer alerts and a streamlined checkout process to make these alerts more actionable. For hosts, it introduced pre-built templates for common customer service questions and a new earnings dashboard.

We heard very little about the experiences business, aside from some updates on more social media impressions for its “Icons” listings. Airbnb is gearing up to globally relaunch this segment in May 2025, and traction for this 2nd attempt at expanding beyond the product core needs to come this time. Last time, poor product-market fit as well as the pandemic forcing it to prioritize profits and balance sheet health led to the pause. This time, there’s no excuse.

It’s exciting to think the business is this large with just one product… and also frustrating that we heard about experiences in its IPO S1 4 years ago while the segment remains tiny today. I get that it has revamped the offering to better cater to interests and is now ready to lean back in. I would just like for that to be happening much more quickly. Maybe that’s unfair, but I don’t think so. Just go look at how rapidly Uber has grown its product suite since 2020. Silence has been notable for years, and that raises the stakes for 2025 being a big year for this project blossoming. This should mean more top-of-funnel growth, more cross-selling and higher customer retention if done well.

Next, nights booked growth in newer priority markets like Japan doubled overall growth. Its marketing campaign in that important country seems to be going well and its geographic expansion efforts are clearly working. To augment this momentum, it will add new local payment options in Vietnam and other nations to get to 40 total countries with localized options. Local payment options have a very positive and strong correlation with checkout conversion rates.

CEO Brian Chesky has some encouraging comments on regulation. In New York City, where laws are the most strict, rent prices have actually risen 3.5% since new short-term rules were implemented. Hotel prices are up 7% over that same period as “New York City becomes a cautionary tale of how to deal with Airbnb.” Chesky is optimistic that regulators there will eventually learn from their mistakes and change course. We’ll see. In Paris, it has created a very collaborative relationship with that government. This fostered the explosive growth we saw this quarter in the iconic city. Per Chesky, many other municipalities are approaching Airbnb now to ask “how can we be like Paris and not New York City.” That bodes very well for diminishing regulatory pressure.

I think we are in wait and see mode here. The growth engine has carried this mono-line product firm farther than anyone could have expected. It has also done so while turning Airbnb into a perennial cash printer. But? Growth is slowing and new outlets will be needed for Airbnb and its still young founder to realize its large ambitions. The company is essentially a short-term rental global monopoly, with smaller competitors sporadically present across its markets. Next year, we will learn if Airbnb can drive the momentum needed to expand beyond this wonderful business and to reignite its growth profile. If that happens, I think there’s a ton to like here, especially given regulatory comments offered this quarter.

As Max readers know, I don’t own it, but I have in the past and continue to watch this very closely.

The Trade Desk is the leading buy-side player in open internet advertising. The firm’s two most compelling revenue segments are streaming, where it has relationships with most major players, and retail media, where it works with countless Fortune 500 vendors.

Its platform allows advertisers to bid on & purchase unique impressions with surgical precision, scale and open reporting. Purchases are essentially made on an impression-by-impression basis to uplift targeting efficacy and to double ad return metrics. Needed data is infused into every purchasing decision to ensure ads provide optimal value. No longer do advertisers need to commit millions at annual upfront events to reach audiences; they can commit to smaller purchases in real-time and with fantastic accuracy. No more guessing.

Kokai is the name of its data-driven, AI-copilot infused platform. It combines TTD’s leading open internet scale with its vast roster of 3rd parties to inject more data and signal into each decision. It tells advertisers who they should be targeting. Kokai does so through TTD’s decade of experience that allows it to essentially find groups of high intent “copy-cat customers” with similar interests. Advertisers onboard their first party data (what TTD calls “concentrated data seeds”) and The Trade Desk does the rest. Kokai allows buyers to focus on whichever variable, key performance indicator or campaign objective they’d like to. It allows all of this to be done in a self-serve fashion or in a fully managed environment. Up to them. Finally, Kokai emulates the ease of data onboarding that has made Alphabet and Meta so popular.

Unified ID 2.0 (UID2) is its open internet, omni-channel identifier. It uses hashed emails to responsibly ensure consumer and brand comfort. It knows exactly who is accessing what site or app. Kokai tells you who to target, while UID2 tells you where they are. 

Other products include:

OpenPath and UID2 are meant to support the sell-side rather than supplant it. TTD does not want to build a sell-side platform. It wants to exclusively represent the buy side to eliminate conflict of interest. Helping sell-siders with identity and supply chain is meant to help its buyers enjoy more success.

“There are no signs of CTV slowing down.”

Co-Founder/CEO Jeff Green

Founder awards through 2022 and 2023 weighed heavily on GAAP margins and EPS. That impact was much smaller this quarter, which means easier 1 and 2 year margin comps.

TTD EPS es expected to grow by 28% this year and by 19% next year.

Co-Founder/CEO Jeff Green took us through a series of factors that he believes explain why The Trade Desk takes market share every single quarter. It’s these factors that continue to yield a massive runway of “sustainable secular tailwinds,” which TTD expects to persist in the years ahead. It’s these factors that TTD is best-positioned to use to power above-industry growth. We’ll walk through the various items here.

First, macro weakness forces marketing departments to fixate more on return maintenance and to “do more with less.” How do you do that? By plugging into the Kokai platform that provides all of the data you need. With it, you get ample context, world-class, AI-fueled targeting algorithms and always-on identifiers to ensure you're focusing on the right consumers and you know exactly where they are. It’s factors like this that explain why it at least doubles return on ad spend for clients and has commanded a consistent 20% take rate for a decade. 

Simply put, Kokai is data-driven to its core, rather than being spray and pray. That’s powerful and always popular… but the sense of urgency to embrace this approach inherently rises with macro fragility, like we’ve seen this year. Higher cost of capital and inflation are pushing still hesitant consumers to scrutinize every purchase a bit more, and it’s up to brands and The Trade Desk to ensure they’re cutting through that caution. Going forward, TTD is fixated on lacing as much automation, and GenAI utility into Kokai as possible. It has created dedicated teams specifically to work on this.

The next factor Green cited was a distracted Alphabet. The Search Giant is urgently trying to compete in GenAI and to use tools like Gemini to ensure its strong future in search. This has taken some of the focus away from its programmatic advertising business. All of this is happening while the Department of Justice is investigating Google’s ad-tech platform and whether it’s unfairly pushing impression demand to its own properties like YouTube. We don’t know what’s going to happen here. We do know that this is making Google move more slowly and cautiously, which is advantage TTD. Per Green, this mega-cap is a “weaker competitor,” than it has been in years.

“[The Search Giant] is a phenomenal company. I think they have a tremendous amount of opportunity ahead of it as it relates to search and cloud and AI and Gemini. But it is clear that they have been deprioritizing network advertising, and it has not performed the way that the rest of their business has.”

Co-Founder/CEO Jeff Green

This ties into the large push from advertisers for open, honest reporting. As spoken about last quarter, buyers are finding that Walled Gardens like this one and many others cherry pick reporting data. So? While YouTube may report strong click through or conversion rates, the revenue impact mysteriously doesn’t match. TTD, on the other hand, openly uses incremental revenue contribution as a key performance indicator. This is becoming very popular.

“What has clearly come out in the trial is that they have not always played fair, and that might be the understatement of the call. But we have managed to win in an unfair market.”

Co-Founder/CEO Jeff Green

As an aside, Alphabet, Meta and Amazon are elite businesses. I own all 3 of them as you know. The Trade Desk is always highly critical of mega-caps. And while they frequently diss the big boys, these are some of the best businesses in the world. What he says doesn’t change that. The Trade Desk is a great business; these three are all great businesses.

Next, streaming has morphed from a seller’s market to a buyer’s market in recent quarters. Why? Because every major player is now offering ad-tiers and realizing this will be vital for funding expensive content costs. And? Nobody in streaming has the dominant market share to make building a walled garden and a closed ad network work. Enter TTD. Scarce supply means higher cost per thousand impressions (CPMs) and lower return on ad spend (ROAS) – all else equal. Conversely, like our Econ 101 textbooks teach us, more supply applies downward pressure to pricing. That diminishes buy-side friction and is good for TTD’s business. The rapidly growing programmatic impression choices also naturally create more ecosystem complexity. That is exactly what Kokai is designed to handle, as it sifts through billions of daily options.

Furthermore, this trend puts a lot more pressure on publishers to demonstrate unique value to win over more budgets. OpenPath's vastly streamlined supply chain and UID2’s always-on identity provides exactly that. It offered a great case study this quarter on Fox using these tools to 7x their ad fill rate while finding 25% more revenue. That’s massive and all because of The Trade Desk. 

Again… This is why it can charge a 20% take rate. It provides far more value than it charges for. And along these same lines, The Trade Desk is committed to creating an even more open, and fair supply chain. It sees many companies embracing its mindset of creating more value and will look to more quickly partner with them. It also sees many others prioritizing short term “value extraction” and often dishonest reporting. It thinks these companies are going to quickly go belly-up as The Trade Desk cleans up this supply chain and drives more awareness. With its pristine reputation of always doing things the right way, it can lead this charge; that’s the plan.

Aside from streaming, TTD’s dominant positioning in Audio and Retail media provides two more lengthy secular growth runways. In Audio, its partnership with Spotify to help it build its own programmatic ad network is big news. Spotify represents the lion’s share of addressable inventory across audio. And now? It’s committed to making a much larger portion of impressions addressable (real-time biddable). That is great news for TTD. Audio is the most under-monetized ad channel that this company focuses on. Over the next few years, as listening hours keep growing, TTD sees that monetization gap closing. To Green, this market looks like CTV several years ago.

In retail media, it’s working with pretty much every major chain you think of. It’s allowing these companies to precisely connect dollars spent to dollars earned in revenue to vastly improve reporting standards. This is something that Amazon does very well, considering it can connect ad impressions to its own marketplace. Through piecing together the majority of the open internet, TTD is emulating this strength.

“Retail media has rapidly become one of the fastest-growing areas of our business, a trend we expect to accelerate through 2025. Retail data on our platform is transforming how many CPG advertisers approach measurement and attribution.”

Co-Founder/CEO Jeff Green

Finally is live sports. This is the last domino to fall within the cord cutting revolution. And oh my is it falling. The Trade Desk is enjoying a banner year for NFL impression placements and is already seeing 1.5 billion of these impressions per weekend for “dozens” of major brands. These brands are delivering 100%+ Y/Y revenue growth here. Thank you Disney, CBS and Fox. Kokai is perfect for live sports. Rapidly evolving scores mean rapidly evolving fan interest. That can impact the value of impressions in real time. That’s impossible to account for when purchasing millions of impressions well in advance. It’s easy to do with Kokai. For a quick-service restaurant chain, switching from linear to programmatic ads around NFL games yielded a 9% boost in mobile transactions vs. old campaigns.

“Taken together, these initiatives position the Trade Desk very well for market-leading growth in the years ahead… I expect advertisers will emerge in 2025, more empowered than ever to drive data-driven precision. As a result, we will continue to gain share.”

Co-Founder/CEO Jeff Green

And while partnerships have helped carry this business, its most impactful relationships are still very nascent:

“Some of our most significant partnerships, whether that's Netflix or Disney or Roku or Fox or Spotify are all in what I would call the crawl phase of our partnership.”

Co-Founder/CEO Jeff Green

In the quarterly earnings preview sent to subscribers a few weeks ago, I talked about TTD approaching “Visa-like” fundamental quality, but also expectations for the quarter resembling a game of “who can set the highest price target.” I wrote about this leading to sky-high expectations and needing perfection to avoid a material sell-off. This was perfect in every way. And while a -10% move isn’t fun to watch, it is flat on the week and up 40% over the last 90 days. Stocks can’t go up in straight lines and I find this earnings outcome to actually be ideal. I apologize if that sounds insensitive to those playing in short-dated option, but when zooming out this is what long term investors should want.

The company is killing it. There is no weakness to pick at. And now the multiple is starting to thankfully fall. As of right now (and who knows where this opens tomorrow – could be higher, could be lower), I’m not planning on adding. The valuation is contracting from very, very expensive to just very expensive. The 200-day moving average around $99 bucks looks like a decent spot to add back my previous trims. Again, who knows if we come close to seeing that. I’ll keep you posted as always.