Datadog's (DDOG) Q4 2021 Results - Earnings Call
Datadog, Inc. (NASDAQ:DDOG) Q4 2021 Earnings Conference Call February 10, 2022 8:00 AM ET
Company Participants
Yuka Broderick – Head-Investor Relations
Olivier Pomel – Chief Executive Officer and Co-Founder
David Obstler – Chief Financial Officer
Conference Call Participants
Raimo Lenschow – Barclays
Kash Rangan – Goldman Sachs
Sanjit Singh – Morgan Stanley
Sterling Auty – JPMorgan
Fatima Boolani – Citi
Brent Thill – Jefferies
Brad Rebeck – Stifel
Michael Turits – Keybanc
Matt Hedberg – RBC Capital Markets
Adam Tindle – Raymond James
Gregg Moskowitz – Mizuho
Yun Kim – Loop Capital Markets
Mike Cikos – Needham & Company
Operator
Welcome to the Q4 2021 Datadog Earnings Conference Call. My name is John and I’ll be your operator for today’s call. [Operator Instructions]
And I will now turn a call over to Yuka Broderick, Head of Investor Relations.
Yuka Broderick
Thank you, John. Good morning. And thank you for joining us to review Datadog’s fourth quarter and fiscal year 2021 financial results, which we announced in our press release issued this morning.
Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog’s CFO.
During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the first quarter and fiscal year 2022; our gross margins and operating margins, including investments in R&D and go-to-market, our strategy, our product capability and ability to capitalize on our market opportunities.
The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially.
For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended September 30, 2021. Additional information will be made available in our upcoming Form 10-K for the year ended December 31, 2021, and other filings and reports that we may file with the SEC. These filings are available on the Investor Relations section of our website along with the replay of this call.
We will discuss non-GAAP financial measures which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.datadoghq.com.
With that, I'd like to turn the call over to Olivier.
Olivier Pomel
Thanks, Yuka. And thank you all for joining us this morning. We are very pleased with our performance in Q4, where we showed high growth at scale, as well as strong business efficiencies.
Looking back at 2021, not only do we continue to see a very strong demand environment, we also kept innovating at a rapid pace. And our team executed extremely well to help our customers manage complexity in the COVID era.
Let's start with a quick scenario of Q4. Revenue was $326 million, an increase of 84% year-over-year and above the high end of our guidance range.
We had about 18,800 customers up from about 14,200 at the end of last year. We ended the quarter with about 2,010 customers with ARR of $100,000 or more, up from 1,228 at the end of last year. These customers generated about 83% of our ARR. We had 216 customers with ARR of $1 million or more, which was more than double the 101 we had at the end of last year.
The leverage and efficiency of our business model is coming through with free cash of $107 million. And our dollar-based net retention rates continued to be over 130% as customers increase our usage and adopted our newer products.
At a high level, positive business trends from recent quarters, continued in Q4. Business growth from existing customers exceeded our expectation this quarter, and we saw strong growth across all the products in our platform in all business segments.
We had record new logo ARR in Q4, including some large new enterprise wins. And churn remains low and in line with historical rates. All these factors together led to another record quarter of ARR added.
Next, our platform strategy continues to resonate in the market. As of the end of Q4, 78% of customers were using two or more products, up from 72% a year ago, 33% of customers were using four or more products, up from 22% a year ago and as a sign of further adoption of our platform, we saw that 10% of our customers were using six or more products, which is up from 3% last year.
We saw strong growth across our platform in Q4. Year-over-year growth of infrastructure monitoring ARR has accelerated in Q4 compared to Q3. In addition to that, APM suite and logo management products continue to be in hyper-growth mode. And we're very pleased to report that our newer products added about $100 million in ARR in 2021. These are the newer products we launched in 2019, which excludes core infrastructure, core APM and log management.
Now let's move on to product and R&D, where our teams have not been slowing down and delivered another strong quarter of innovation. We announced the general availability of Sensitive Data Scanner in December. Sensitive Data Scanner gives customers an easy and cost-effective method to discover, classify and protect sensitive information. With modern applications, data moves across many important teams, making it difficult to know when services are storing sensitive data. This is particularly important for enterprises in regulated industries like health care or financial services. Sensitive Data Scanner is available today for log management, and we will be working to extend it into other areas of the platform in 2022.
We also announced this morning the acquisition of CoScreen, a screen-sharing platform that allows participants to interact with a joint work space in real time. Engineering is a team sport. CoScreen lets us bring individual work into a shared team environment. And unlike general purpose video conferencing tools, which are one-to-many and focus on presentation and conversation, CoScreen is many-to-many, allowing multiple participants to share and collaborate in each other's windows as if they were local applications. We believe this will help our customers in a number of use cases such as incident response and alliance with our funding goal of breaking down silos between teams.
Now let's take a moment to review our accomplishments in 2021. We ended the year with thirteen generally available products, up from nine at the end of 2020. We significantly extended our visibility capabilities in 2021.
In infrastructure monitoring, we made it even easier to instrument and monitor. We launched over 80 new integrations covering clouds, CDNs, web platforms, automation platforms and more. We now have over 500 integrations and continue to go deeper into cloud platforms, including AWS, Azure and GCP. We launched network device monitoring for physical network devices and appliances, we created new container center views as our customers continue adopting [indiscernible] at massive scale.
On the serverless front, we have expanded our coverage to include visibility into not only the functions customers develop, but also the ecosystem of data, security and routing services that surround them. And we launched a beta of universal service monitoring, which captures service level health and performance without needing to modify any application code.
Our APM suite was named a leader in the Gartner Magic Quadrant in 2021, and we doubled down on innovation in APM. We expanded release and we’re monitoring meaningfully, particularly for Android and iOS mobile devices. We launched session replay, database monitoring and automated tracking of faulty deployment. We expanded Synthetic Monitoring with support of numerous new browsers and locations.
In Continuous Profiler, we added support to provide many new languages such as .NET, Ruby, PHP, CC++ and NodeJS. And we invested to get close with developers’ day-to-day experience with synthetic testing in CI pipelines, now detecting problems before they happen in production, they are tracking no covering front-end devices and back-end services. And source code integration enabling developers to type production to the right line of code.
In Lab Management, we continue to aggressively invest, providing more sophisticated analytical and governance capabilities and giving our customers more flexibility with data storage and retention. Our improvements unlock many sophisticated use cases, for example, in cybersecurity and business analysis.
We also announced Online Archives, a new long-term data store for extremely large data volumes. Now further extending obtainability to development workflows, we launched CI Visibility to help developers ship faster and more safely. And going beyond observability, we launched our Cloud Security Platform, including Cloud Team, Cloud Security Posture Management and Cloud Workload Security. In addition to those, our application security product is currently in beta. And we're now very pleased with our early momentum in security as we have thousands of customers using our cloud security products today.
We also kept opening up Datadog as a platform with the release of Datadog apps. And finally, we'll continue to invest and innovate with Watchdog, Datadog's AI engine. Watchdog automatically detect and correlate anamolies, and we've been busy extending Watchdog to provide information in context throughout our platform. I want to thank our engineering and product teams for their hard work and their focus on our customers.
Now moving on to sales and marketing. Earlier this month, we announced the promotion of Sean Walters to Chief Revenue Officer. This is a well-deserved promotion for Sean, who has been an enterprise sales leader at Datadog for four years now and has shown excellence in building strong teams and delivering high productivity. We've all been impressed with his performance over the past few quarters as well. Sean has a deep experience in the field with over 20 years of increasing responsibilities in software sales, and we are excited to see him build on his successes as CRO.
In addition to this, we are pleased to have received a FedRAMP moderate authorization. As a result, we can now sell to U.S. Federal Government agencies as well as the other public sector customers who use FedRAMP as an indicator of compliance and security. We have been working to build our go-to-market teams for the public sector, and we intend to expand on those efforts aggressively.
We also announced a global strategic partnership with AWS. This is a recognition of our success and growth with AWS and our commitment to further invest to accelerate our joint opportunities. Among the areas of further partnership, we have already integrated Datadog more tightly into the AWS marketplace. We are also working with AWS to build deeper integrations not only for observability, but also for security use cases, and we are also planning to extend our joint go-to-market activities. Meanwhile, our sales teams continue to execute at a very high level.
So, let's discuss some wins for Q4. First, we had a six-year land deal with a major U.S. airline. This customer has chosen Datadog as the de facto monitoring solution for all new IT projects and applications. They plan to start with six products in the Datadog platform with an expectation to expand significantly with more teams and applications over time.
Next, we had a seven-figure up-sell with a major European car company. Prior to using Datadog, this customer has five disparate monitoring tools, which created focus alerts while leaving gaps in coverage. With Datadog, they were able to break down silos between teams and reduce the frequency and duration of outages.
Next, we had an up-sell to [indiscernible] ARR with a major financial infrastructure company. This customer has consolidated multiple monitoring tools in Datadog, helping them ensure stability and support growth. This customer estimate savings of 2.5% [ph] by migrating to Datadog. And the up-sell also includes new products such as Cloud Team, Cloud Workload Security and Cloud Security Posture Management. And this customer now uses 10 Datadog products.
Next, we have seven-figure up-sell with a multinational, beverage conglomerate. This expansion makes Datadog their global observability standards with enterprise adoption across six international zones. Thanks to Datadog Correlation, what used to take three people an hour of data gathering, now it takes one person less than ten minutes.
And finally, we wanted to spend some time discussing our largest-ever, multimillion dollar land deal with a major media company. This media conglomerate sees massive amounts of traffic with this customer-facing content. And the most critical content such as live sports and entertainment requires highly optimized observability. This customer also decided to embark upon a significant digital transformation project, eliminating its data centers over time in favor of cloud. This operational overhaul hinged on proper end-to-end observability. But the customers' existing monitoring solutions failed to innovate quickly enough to support this growth and increasing complexity.
In addition, reliance in open-source tooling was a strain on engineering resources. Datadog provided a single integrity cloud solution, and the customer planned to replace eight different commercial and open-source tools with a Datadog platform, starting with five of our products.
So, as you can see, our go-to-market teams are successfully helping both new and existing customers get value at Datadog. And I want to congratulate them for their incredible work this quarter.
Now looking ahead to 2022 and beyond, we continue to see digital transformation and cloud migration as critical for our existing and prospective customers. The cloud and other next-gen technologies are creating complexity that customers need to understand and manage. Meanwhile, security threats can occur anywhere in this broad and dynamic set of infrastructure and applications, making identifying vulnerability and attacks absolutely crucial.
So, there's a lot of demand out there for observability and security for [indiscernible]. As a result, we continue to feel that we are still very early with respect to our products and our market opportunity. And looking forward to 2022, we will make further progress in expanding the Datadog platform. We have a lot to do, and we're excited about what's in front of us.
On a final note, we feel that 2021 was a very successful year for Datadog, which we recognize, and it's been a tough time for many others. This is why we're happy to report that together with our employees, Datadog dedicated over $3 million to nonprofit global organizations at the end of the year, and we look forward to giving back more to our communities in 2022.
With that, I will turn the call over to our CFO for a review of financial performance and guidance. David?
David Obstler
Thanks, Olivier. In summary, we had a very strong Q4 and fiscal year 2021. Revenue was $326 million, up 84% year-over-year and up 21% quarter-over-quarter. Usage growth with our existing customers exceeded our expectations. Customers are finding value from adopting more products on our platform. And new logo ARR grew robustly in Q4.
Let's go into some more of the details. First, growth of existing customers was strong in Q4. And our dollar-based net retention rate remained above 130% for the 18th consecutive quarter.
Usage growth was very strong. Our customers expanded the usage of our largest products meaningfully. Infrastructure monitoring year-over-year ARR growth accelerated from Q3 levels. And the APM suite and log management products remain in hyper-growth mode. And our newer products are all growing very rapidly.
We also saw strong ARR growth in each geographical region. North America, EMEA and APAC all accelerated on a year-over-year basis compared to Q3. Our go-to-market teams delivered a strong quarter in new logos and new logo ARR. We added 1,300 customers sequentially, a new record for us. And new logo ARR was also a record and included our largest ARR land ever, as Olivier discussed earlier.
Remember that given our usage-based revenue model, new logo wins generally do not immediately translate into meaningful revenue. Our platform strategy continues to resonate with customers with 78% of our customers using two or more products, 33% using four or more products and 10% on using six or more Datadog products as of the end of Q4.
Finally, churn has remained low. Our dollar-based gross retention rate has gradually improved over the years and is now in the mid- to high-90s, and it's similar across customer segments and major products.
Turning to billings, billings were $408 million, up 86% year-over-year. Billings duration in Q4 were similar to the year ago quarter and within the range we've seen historically. Remaining performance obligations, or RPO, was $815 million, up 88% year-over-year. And contract duration was similar to the year ago quarter.
Current RPO growth was over 80% year-over-year. We continue to believe revenue is a better indicator of our business trends than billings and RPO as those can fluctuate relative to revenue based on the timing of invoicing and the duration of customer contracts.
Now let's review the income statement. As a reminder, unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.
Gross profit in the quarter was $262 million, representing a gross margin of 80%. This compares to a gross margin of 78% last quarter and also 78% in the year ago quarter. As we discussed on last quarter's call, we saw efficiencies in cloud costs reflected in our cost of goods sold in the quarter. In the medium- to long-term, we continue to expect gross margin to remain in the high-70s range.
Operating income was $71 million or a 22% operating margin compared to an operating income of $18 million with a 10% margin in the year ago quarter. We are experiencing significant business efficiencies on strong revenue growth. This is occurring despite continued, aggressive investments in our long-term opportunities, particularly in R&D and go-to-market.
Finally, in Q4, we hosted our DASH User Conference virtually and had a strong presence at AWS Reinvent.
Turning to the balance sheet and cash flow statements, we ended the quarter with $1.6 billion in cash, cash equivalents, restricted cash and marketable securities. And cash flow from operations was a strong $116 million in the quarter. After taking into account – taking into consideration CapEx and capitalized software, free cash flow was $107 million with a free cash flow margin of 33%.
I want to briefly summarize our fiscal 2021 results. Revenue was $1.03 billion, up 70% year-over-year. We generated $165 million positive in operating income for a 16% operating margin compared to $64 billion with an 11% operating margin in 2020. And we generated $251 million in free cash flow at a 24% margin in 2021 compared to $83 million at a 14% margin in 2020. I want to thank all Datadog employees for their hard work and strong execution throughout 2021.
Now for our outlook for the first quarter and fiscal year 2022, we continue to believe we are in early days of our opportunity in observability. And we are at the very beginning of our potential in-cloud security and developer-focused observability. At 18,800 customers, we believe we are still very early in our penetration of potential customers worldwide, and we see opportunities broadly across industries and customer sizes.
As we look on to 2022, we believe companies have learned to manage around the potential business disruptions and remote work life over the past couple of years. And we believe that the need for companies to embark upon digital transformation and cloud migration projects is higher than ever and our strategic imperative to drive competitive advantage. So, we are initiating our fiscal 2022 guidance, which includes continued high growth.
With our usual conservatism applied, our outlook is as follows. For the first quarter, we expect revenues to be in the range of $334 million to $339 million, which represents 70% year-over-year growth at the midpoint. Non-GAAP operating income is expected to be in the range of $36 million to $41 million. And non-GAAP net income per share is expected to be in the $0.10 to $0.12 range per share based on approximately 348 million weighted average diluted shares.
For the full year fiscal 2022, we expect revenues to be in the range of $1.51 billion to $1.53 billion, which represents 48% year-over-year growth at the midpoint. Non-GAAP operating income is expected to be in the range of $160 million to $180 million. And non-GAAP net income per share is expected to be in the range of $0.45 to $0.51 per share at approximately 350 million weighted average diluted shares outstanding. And now some notes on the guidance. As usual, when providing guidance, we use more conservative assumptions than we have seen in our historical results.
Our strategic focus remains to invest aggressively in R&D and go-to-market to optimize for our long-term growth. Next, our model assumes greater expenses related to travel and in-person events going forward, but we remain flexible depending on further COVID developments, and our highest priority is protecting the health of our employees.
Finally, as it relates to our capital expenditures, we are catching up on office build-outs and expect CapEx as a percent of sales to roughly double compared to 2021. In conclusion, we are very pleased with our results in Q4 and 2021. We continue to innovate rapidly and broaden our platform capabilities with many more products planned to be launched in 2022. We have grown our go-to-market opportunities, including in the public sector with our FedRAMP Moderate Authorization and deepening our relationships with our cloud partners. And across the company, we are working hard to execute against our opportunities in 2022 and beyond.
And with that, we will open the call for questions. Operator, let's begin the Q& A.
Question-and-Answer Session
[Operator Instructions] And our first question is from Raimo Lenschow from Barclays.
Q - Raimo Lenschow
Thank you. Raimo Lenschow, my name. Congratulations. I think it was an amazing quarter. Olivier, you mentioned a higher usage in this quarter. What's driving that? Is that just kind of people standardizing? Is it just traffic as the clients getting better, because that's kind of in a very, very strong number? What are the factors there? Thank you.
Olivier Pomel
I don't think there's one specific factor that's driving it. I think it's a combination of everyone's digital transformation, cloud migration still happening. And happening with the, I would say, the historical rate we've seen through the history of the company. That plus us covering more and more surface with those customers having more product that they can adopt they can grow into. And so that's what we thought through the quarter.
We did see – like this is a Q4, right, so we did see the same compression at the end of the quarter as we see every year. It was also a bit more pronounced like it was last year. We've seen them to be a bit more pronounced in a post-COVID world. But overall, the quarter was very, very strong and definitely stronger than last year.
Raimo Lenschow
Okay. And then one follow-up on that one. You talked about some of the very big wins and how they are consolidating on you. Do you see that consolidation about more in-house build tooling and open-source tools? Or is it also consolidating like some of the kind of more established competitors in the space, in the kind of upper APM load areas, et cetera?
Olivier Pomel
It's a mix of both. Really, it follows the distribution of tooling out there. Like whatever customers have is what they end up consolidating on us. And this movement, we're still early in this consolidation movement. We see it happen, I would say, maybe a bit more often than we used to. I mean we're mentioning a couple in every earnings call at this point with the large ones are fairly notable. But we expect to see more of that in the future, but not necessarily right away.
Raimo Lenschow
Okay. Perfect. Congratulations. Well done.
Olivier Pomel
Thank you.
Operator
Our next question is from Kash Rangan from Goldman Sachs.
Kash Rangan
Thank you so much, what a superb quarter, Olivier. I'm curious to get your thoughts on a couple of things. One is as the product suite broadens out, how are you thinking about distribution? Are you going to have more specialized distribution attacking, say, the DevOps market for the app market in your core markets in APM and monitoring? And I have a follow-up question. Thank you so much.
Olivier Pomel
The answer is, we're open to whatever we work. We still haven't made any changes to the way we distribute. We still have one sales force that sells everything. We still land largely with infrastructure and the expand from there. And we actually see some proof points that we can get some very good wins that way. I mean I think we mentioned on the call the fact that one of our very large customers in finance adopted our security suites. And that was done with our standard land-and-expand motion.
So, we see that working in at least some cases. That being said, as we fully mature newer product, especially the security product, we might have to have to get some go to market, but we're not there yet.
Kash Rangan
Got it. And second and final one, thank you so much for that. As you look at the consumption model, when trends are improving, obviously, those revenue outcomes can be as impressive as the ones that you have. As you've become a larger company, are you contemplating things to minimize the volatility of these results and have a little bit more predictability on the other positive side? And that would mean like a snowflake gives concessions to its customers as they keep making technology improvements, they pass back some of these savings to alleviate any potential pushback as you become a more strategic vendor? Oh my god, I'm spending those so much. It is of great value, but at the same time, can you elaborate a little bit on how you can think ahead and anticipate some of the things that can get underway? That's it for me, thank you so much and congrats.
Olivier Pomel
Yes. So, the way we deal with that is – and again, the backdrop there is the explosion of data volumes. So, if data volume at our customers grow a lot faster than the top line, at some point, you can't grow what you charge for that linearly with the data volume. The way we deal with that is, we give them more and more options. And those options are differentiated technologically at least so that we can keep developing new ways of storing the data, different types of data in different ways for different periods of time and let customers choose what they want to use out of that.
So that's what we're doing with Online Archives, for example, which is – which we announced last year and which is going great this year. That's also why we invested in – we're investing in the ability pipeline. So, there's a number of things we're doing to help put customers in control and make sure that what we deliver always, always aligns with the – what we charge always aligns with the value customers get.
Kash Rangan
Thank you so much.
Operator
Our next question is from Sanjit Singh from Morgan Stanley.
Sanjit Singh
Thank you for taking the questions and my congrats on exceptional 2021. Olivier, I wanted to talk a little bit about your comment about the early days of the opportunity on sort of two-dimensions. If I look at some of the big software companies that we've seen, whether it's Salesforce or VMware or other large companies, they have north of hundreds of thousands of customers, right? And you're sort of sitting at 18,000. I was wondering in terms of your guys' vision, do you envision Datadog getting to the sort of customer account levels? That's sort of part one of the question.
On the other hand, it seems like you guys are doing better and better up-market at despite this largest stuff or land and win with this media company. Do you start to feel that the large enterprise market is now moving more and more towards the sort of Datadog platform versus kind of this sort of hybrid cloud approach that they've been at, sort of mobility that they bid in for the last couple of years? Any sort of views on traction in enterprise and what sort of customer comes can get to longer-term?
Olivier Pomel
Yes. So, on the first question, we definitely – we build a product and a company that serves the whole market, like the whole gamut of potential customers. We think that developers at small companies behave, especially in the cloud, they behave very much the same way as developers in very large enterprises. They have the same toolbox. They work the same way largely. And so, we built a product that service everyone. We do expect to have very large counts of customers in the end.
But to your second question, we also see, right now, a lot of the demand, a lot of the growth is coming from mid-market and larger enterprises and also the higher end of the market. And we feel good about that part of the market, like we see it successfully standardize on Datadog. We see it successfully land-and-expand with us. I think we're growing faster. Well, I would say we're an equivalent size and growing faster than anybody else in the market for that specific part of the market. So, I think we feel good about it. That's a big part of what we're doing.
Sanjit Singh
That makes a ton of sense. And I guess my follow-up question relates to security. I understand that's still early days in the move into this area. I wondered if you could talk about it in sort of two-pieces. One, selling security solutions to your core set of users, how confident are you that you're going to see traction in that motion sooner versus maybe selling securities solutions to operations team, which might require more of an investment, more of a specialized go-to-market motion? If you can sort of – how do we think through traction on sort of part one of that selling to like Datadog users versus the big operations?
Olivier Pomel
So, the traction is here. We see the traction, right? So, we mentioned on the call, we have thousands of customers on security products. And so, the adoption is there. It's happening. It's happening across our products. We have a number of products we started charging for in Q4, such as Cloud Workload Protection, for example. And those actually are off to a strong start. So, we are pretty impressed with the numbers we see there. So again, it's too early to pass judgment. We have to see them perform for a couple of quarters.
We have to see what’s working, what's not working as customers get multiple quarters into the adoption of the product. But the size we see today are very positive in terms of the adoption, in terms of the fit of those products, in terms of the way our story makes sense for our customers. It's still possible we have to make changes to the go-to-market motion and specialize the teams and do a number of other things.
I would say it might come in a bit later when customers are – start embarking on the same standardization motion for security as they do right now with us for observability. But today, we're very pleased with what we see in terms of the fit and the adoption of those product. This is happening according to plan, I would say. So, we're very happy.
Sanjit Singh
Very encouraging. Thank you, Olivier.
Operator
Our next question is from Sterling Auty from JPMorgan.
Sterling Auty
Thanks. Hi, guys. Maybe we'll switch over to the margin side. So, David, in particular, I was impressed by your sales and marketing spend increased less this year quarter-over-quarter than it did last year, but the revenue incremental dollars that you added was much higher. Can you kind of go through, is that all just because of the usage based in existing customer contribution in the quarter?
David Obstler
Yes. That's because of the usage and the cross-sell and the efficiency of it in our frictionless adoption. So, it's an indication of both the robotics and the end market as well as the ability for clients to adopt more of the platform.
Sterling Auty
Got it. And then maybe one quick follow-up. Same thing on gross margins, it was a very big sequential bump. What's contributing to it? And is it durable at these levels? Or what should we be contemplating in terms of that trend?
David Obstler
Yes. And as we said since we went public that we are focusing on gross margins in the mid-70% to touching 80%. And that there will be periods of time that due to investment, they will tend towards to the middle or lower part of that range and then go up. And in this case, in this period of time, we were able to harvest efficiencies in our cloud costs. And like in other periods of the fluctuation of the gross margin, we've hit 80%.
As we're investing, we may dip below that. But as we said in my prepared remarks, we feel confident that will remain in the mid-to-upper parts of the 70% range.
Olivier Pomel
As a reminder, we're shipping a cloud cost management product next year, and we hope to be the first case study for that.
Sterling Auty
Understood, thank you.
Operator
Our next question is from Fatima Boolani from Citi.
Fatima Boolani
Good morning, thank you for taking my question. Olivier, maybe I'll start with you. You've been very conservative with respect to some of your commentary around the traction you're seeing outside of your core wheelhouse of observability in the realm of CICD and real catering to the developer audience. So maybe just to take a step back with 13 generally available products, what are some of the efforts that are being put in place to package certain modules that are in a similar family or address a similar buyer persona? And sort of where are you on that journey to be able to attract more and more of these different groups within the enterprise organization? And then I have a follow-up for David, if I may.
Olivier Pomel
Yes. So, we're actually very happy with those products. So, they're getting to market nicely. So, the CICD product also started charging for fairly recently, and we're very happy with the adoption we see there, similarly to what we said about security. At some point, we'll also comment on the numbers for that. I would say the numbers are still small compared to the rest of the business. But that's small due to the fact that the rest of the business is well north of $1 billion in ARR and growing close to 100% or over 100% of it focused on positive year-over-year.
So, it's going to take more time for it to be meaningful compared to all that. But we do see a lot of potential in those products. We are very happy with the adoption. In terms of the packaging, we always ask ourselves the right way to price and package those products. With big signs of unbundling for – because it does align the very precisely what customers pay with the value they get, and it gives us very strong signal on what works and what doesn't work at the product level.
So, we always start with unbundled. And then over time, we might find that there are something that might need to be packaged differently or customers that want to buy together that's when we start bundling things. But that's we always start with bundle, that's a default motion for us.
Fatima Boolani
I appreciate that detail, Olivier. David, for you, I think you were pretty categorical in your prepared remarks vis-à-vis your guidance philosophy. But taking a step back and in the context of the $1 million deal volume that you saw double this year, how are you contemplating the incidence, frequency and maybe volume of larger deals as you do start seeing some more repeatability and patterns in the way customers are moving to the seven, eight figure deal mark? Any help or context as to how you're thinking about those attributing ….
David Obstler
Yes. Thank you. It's still the similar motion to what we've been experiencing, which means, for the most part, our $100,000-plus customers were started out lower than the $100,000, and our $1 million customers started lower than $1 million. We're still largely the land-and-expand. So, we see that motion continuing. And in addition to that, I think as we said in our prepared remarks, we're seeing, in some cases, where a client has a significant cloud presence and consolidates or outsources or goes to a system rather than open source, we would land and get to a large amount earlier, which we've talked about in some of our prepared comments. But for the most part, it still is that land and expand and evolve from lower deal sizes to the $100, 000 and $1 million as we've been discussing.
Fatima Boolani
Thank you.
Operator
Our next question is from Brent Thill from Jefferies.
Brent Thill
Olivier, on 2022 cloud migrations, there's been some concern given the consumption that we've seen in the last two years that there could be some slowdown or digestion. It doesn't appear that, that's what you're seeing right now. But curious if you could just share your thoughts on what happens this year? And it seems like there's some really new pockets of movement even in financial services and other subsectors that we haven't seen. What are you expecting?
And David, if I can follow-up with you, just on a quick question about Sean's new role. Historically, we've seen changes in the sales team. In other software companies, we've seen a little bit of an air pocket. It seems like you expect that this to proceed smoothly, and it's more of a tweaking of the go-to-market versus a major change. Can you comment on that as well? Thanks.
Olivier Pomel
Sure. Yes. So, in terms of the sort of the trends we've seen, we're forecasting, from what we can tell, there's no – like what we see is continuity. Like what we see in 2021, if you look at it including 2021, it – to us, it looks a lot like 2019, which itself looks a lot like 2018. And what this tells you is we're still early in the transformation and cloud migration. And this is happening – it seems to be happening with a certain rate within enterprises that we take convert workloads and move them to the cloud.
And we've seen that to be more or less throughout the history of the company. So, from where we stand, we don't see any particular acceleration in 2021 that is – it would be a pull-forward of 2022 or anything like that. So, we see continuity. That's what we see. So, we see a strong demand environment. Really, we can't forecast what's going to happen next year. It's possible that we're still in troubled times, and it's possible where things happen. But we're very confident that if that's the case, the setbacks will be temporary and that we're still very early in a very, very broad transformation, the managers of which we know is still difficult to reason about. So that's on your first question. So, we're very confident on the environment and very confident in our place in it.
In terms of the sales team, we actually didn't make a very large synergies to the sales team. We acted with continuity, and we promoted from within for our CRO spot. We promoted Sean, who I think is the best person for the job really. And we don't expect any big changes as part of that. We expect to keep building. We expect to keep scaling. We expect to be a little bit of go-to-market in some areas with the new products to the fold. But mostly, we're here to scale what we have today.
Brent Thill
Thank you.
Operator
Our next question is from Brad Rebeck from Stifel.
Brad Rebeck
Great. Thanks very much. Olivier, last quarter you talked about some recent product releases that could be easily consumed by non-IT employees; so, I'm just wondering how that's trending? And then as we look forward, should we think about that as a driver to 2022 or more 2023 and beyond? Thanks.
Olivier Pomel
Yes. So, we have a few of those products, and we mentioned some of the products that reach more into the business areas of support area, like Session Replay, Analysis, things like that, Cloud Cost Management. There are some that are still not in GA. The others are still very early. We ship them late last year. So, I would say it's definitely too early to share any data about them. 2022, there's still probably going to be too small to have a major impact on the numbers, but that's definitely a big area for growth for us in the future. So, we invest now we to those products and then they make a meaningful contribution in the future. And by the way, that's what we've seen happen with our other products today. I think we mentioned on the call that the "those smaller products" that we released since 2019 collectively added more than $100 million in ARR last year, which is very meaningful. And so, we expect the same to happen with the products we released last year.
Brad Rebeck
That's great. Thanks very much.
Operator
Our next question is from Michael Turits with Keybanc.
Michael Turits
Hey Olivier and everybody, congrats on the quarter. I want to ask the competitive question, particularly important given that you had two public comps that have less impressive results. So very specifically, where are you winning up market? And how are you winning up-market competitively in enterprise and also maybe downmarket where you may be seeing more price competition on ingest?
Olivier Pomel
So first of all, we don't actually see the competition all that much. So, I don't wake up every morning asking myself; how are we going to win or whether we are winning. We mostly compete against customers building it themselves or being on the tool and starting in the cloud without idea what's going on. We do see a few big replacements in every quarter. We've mentioned a few on the call. When that's the case, we – I mean the ones we mentioned are typically the ones that are up market. The reason why we're winning those situations is we offer an integrated platforms where others don't. We're cloud native and others aren't. And most importantly, we have a lot more usage and adoption from the teams on the ground around our product. So that's the deploy what we are used by everyone saying that I repeat that every call, that really is what makes us win in the end with customers, and that applies up market, that applies down market, it applies everywhere.
David Obstler
And let me just add that, of course, we didn't have the APM and logs. We didn't have the breadth of the platform five years ago. So, as we talked about there, a number of customers where we had landed with infrastructure and as they are consolidating on the platform, they're buying our products, whether it be enhancement, whether it be movement from open source or whether it be replacement of the company's products that you're talking about.
Michael Turits
And David, on the packaging of different products or different personas, what about from a sales and go-to-market perspective? Any moves to either create specialized or overlay sales forces given the breadth and scope of what you're now offering?
Olivier Pomel
Not yet. Right now, we're experimenting with a few things, obviously like we're trying to see if it can makes sense in some areas, the prime candidate being security. But we haven't made any big changes to the way we sell. And we also see some interesting proof points that we can be successful with keeping the way the – keeping our sales team the way it is right now. So, we are key on that. We expect it to be an area of focus at some point during the next year, but so far, no changes and so far, looking good.
Michael Turits
Great. Thanks.
Operator
Our next question is from Matt Hedberg from RBC Capital Markets.
Matt Hedberg
Great. Hey, thanks guys. Hey, Oli, it was great to see you achieving better at moderate status. Could you remind us about the success you've had thus far on the federal side? And could that drive additional success there in 2022?
Olivier Pomel
The goal is really to be able to sell to fully go to market on the federal side. With the FedRAMP low we had before, we were limited in the number of agencies we could target, and we also are limited a number of use cases. We basically could only target in past monitoring use cases. We couldn't send logs, APM, things like that. With certain medium what we can do is we can sell all of our products, and we can pretty much sell to every single civilian agency in the Federal Government as well as a number of other government agencies that are local agencies, but that take the same or use FedRAMP as same guidelines for security and compliance. So, it really opens up the market. We've seen some – already some success to date. We already have, as of last quarter, $1 million-plus customer on the federal side on our FedRAMP on our [indiscernible] offer. So, we're optimistic, but we still have a lot of building to do on the go-to-market there, like it's not necessarily exactly the same go-to-market that we used to.
Matt Hedberg
Got it. And then maybe just a quick one on the product side. It was really excited to see a Sensitive Data Scanner launch. It really feels like data governance as a whole is just becoming more important in a post-COVID world. It sounds like it's working today with application logs. Could that product go further? I'm just sort of curious on sort of what the scope of what Datadog provide from a governance – data governance perspective?
Olivier Pomel
Yes. So that product is actually a great example of the power of our platform in all the various use cases we can derive from it. We started the Sensitive Data Scanner with log data, which is very straightforward and something customers love because it tells them immediately whether they are manipulating sensitive data or they should not, which is a hard problem for them to sell. But we can extend it to look at all of the data that ends up on the front end of an application to reuse monitoring. We can extend it to look at all of the data that go through the various services in the back end of the application through the APM. We can extend it to look at all of the data to go through the network through network monitoring. So, it's a great example of who we can use the data collection we already have to help our customers solve hard problems that they couldn't solve otherwise. It's also interesting because it's a product that is pretty much halfway between observability and security. And you could make a good case for attaching to one or the other. So, it really shows like the unified future observability and security platform that we're building.
Matt Hedberg
Super helpful. Congrats on the results, guys.
Olivier Pomel
Thank you.
Operator
Our next question is from Adam Tindle from Raymond James.
Adam Tindle
Okay. Thanks, good morning. Olivier, I just wanted to start with a big picture question. You crossed the $1 billion in ARR threshold this year, a very strong year. That tends to be a milestone where software companies can start thinking about updates to either internal infrastructure or team to take them beyond that $1 billion level. So maybe you could just talk conceptually about how you're thinking about what to put in place to scale Datadog to a multibillion-dollar company?
Olivier Pomel
Well, that's what we do every week. We ask our sales, how are going to keep scaling the company, what we're missing, what we need to add. So, in general, we are scaling company. We're hiring a lot. We're hiring at all levels. We're bringing outside experience where we don't have it. But I would say, in addition to that we're also very, very, very careful to make sure we can keep delivering and keep innovating. I mean we have worked at much larger companies before. I've seen how hard it can be to get things done in a very large organization. And I want to make sure that we keep our teams extremely productive. We minimized the number of redtape that prevent them for getting any work done while putting – building enough roads and enough controls, so we make sure that nothing will happen. So that's the concern every single week for us at Datadog, and that's pretty much what my job is.
Adam Tindle
Understand. Maybe a more near-term follow-up for David on guidance. This time last year, you were guiding to high 30s year-over-year growth for 2021. You obviously overachieved that, but now we're sitting here guiding to high-40s year-over-year in 2022 on a bigger base number. Just wondering how you thought about the process to putting a target out now versus this time last year in 2021. It seems bold, but you talked about usual conservatism. So maybe take us through that? Thank you.
David Obstler
Yes, yes. I think – yes, thanks. I think overall, it's sort of the same ideology, which is to take what we've seen in the usage and numbers and discount it. I will say last year being in COVID, we took and we said this on the call, a bit more of a conservative approach. We had less – we had more uncertainty last year. So, I mean I think we adopted the same approach but applied a little more conservatism last year when we gave our original guidance.
Adam Tindle
That's helpful. Thanks, and congrats again.
David Obstler
Thank you.
Operator
Our next question is from Gregg Moskowitz from Mizuho.
Gregg Moskowitz
Okay, thank you. My congratulations. Olivier, you released Cloud SIEM about 18 months ago, and it seemed to get off to a slower start than the typical new Datadog product. But as you mentioned, you now have thousands of customers that have deployed your security product. So, what I'm wondering is what's the primary driver of this? Is it a function of having more breadth in security, such as sensitive data scanner, cloud workload protection, et cetera? Is it because your sales force and channel has become more adept at selling security? Or is it something else you would point to?
Olivier Pomel
So first of all, actually, it's off to a very strong start. So, we mentioned thousands of customers using it. That's a lot of customers, especially for a product that is an expansion product. That's not something that we lead with typically. So, we're very happy with that. There's still quite a bit of product work happening on it. Like we're growing it so we can support more use cases, so it can be more end-to-end for everything our customers need to do with the cloud so there's quite a bit of investment on that product that remains. So, we're still early in the product development cycle there.
We expect at some point, maybe this year to share some numbers on the revenues by those products, but we're also very happy with the growth there. And those products are growing very, very quickly, obviously from a much smaller base than the rest or products. But we mentioned $100 million of added revenue from the added ARR from the newer product. And the two bigger buckets in there are user experience monitoring and security. So, we see that growing, and we see that being a potential driver of future growth for us.
Gregg Moskowitz
Okay. That's very helpful. And then regarding the new global partnership with AWS or expanded partnership, can you elaborate on how much tighter the product integration may become? And then also how actively are the two companies planning to engage in collaborative go-to-market?
Olivier Pomel
Well, so it's very much a continuation of what we're doing with [indiscernible]. I think we've written down a few things that were more implicit before in terms of what we're going to do from an integration perspective. What's exciting to us is that we've written down things that are – that don't just concern observability, but also reach into security use cases. So, we're going to see broader integrations there between the two products. And we've also decided to get a little bit closer on some of on go to market. There's not much more I can say on that. We're still working on a number of those things. But this is, I would say, in line with what we're doing with other partners to really fully go to market with the cloud provider's customers.
Gregg Moskowitz
Very helpful. Thank you.
Operator
Our next question is from Yun Kim from Loop Capital Markets.
Yun Kim
Hey, guys. First, super congrats on a strong quarter. Your growth is accelerating and you're already at a scale that's much larger than our competition. Obviously, you can keep hiring at the current rate to support growth. Can you just talk about what you are seeing in regards to sales productivity improvement? And is it natural for you to just focus on larger deals to just keep driving higher sales productivity gains?
Olivier Pomel
So first of all, our growth is not completely predicated on sales productivity because we have a largely frictionless model. So, the – part of our growth is, but part is not, which is why you see the revenue growth outpace the sales and marketing growth or expenses growth by a wide margin. Our focus for the year is more on scaling the team than on increasing productivity because productivity is very, very high. If you look at the cost of sale, like we're probably the best, if not close to the best in the market. So, our goal is to keep scaling the team and keep getting the product set, so we can keep getting more of the same economies of scope that we already see with our customers.
Yun Kim
Great. And then just a quick question for David. Can you just, at a high level, talk about level of visibility you have and how that has trended over the past year? You mentioned that revenue recognition could lag the actual signing of the deals. As you sign larger deals, are you seeing increasing revenue visibility? Or some of the new deals and expansion deals take a bit longer to ramp as the deployment size gets larger?
David Obstler
We have very consistent performance on our cohorts across the different types of customers, the way they adopt the product and ramp. And that applies to larger deals as well as smaller. So, we have pretty good visibility, pretty good time series. There hasn't been a change in that pattern of adoption and we monitor that all the time as we look at increasing our ability to predict the revenue. We also, I think are in some cases looking at developing a functionality in account management to help our clients adopt faster. And that is sort of around the edges, but we have a pretty good idea of how our clients are adopting.
Yun Kim
Okay. Great. Thank you so much.
Operator
Our next question is from Mike Cikos from Needham & Company.
Mike Cikos
Hi guys. Thanks for taking the question here. The first, just coming back to the profitability guidance that we have for Q1 and for fiscal 2022 now; for David, I know that you had discussed, I guess, the expectation that we would see some of these travel and in-person events kind of feather back in. I have to imagine that there's some incremental cost with these acquisitions that you guys have announced. Can you help, I guess, fine-tooth that a little bit for us as far as what what's expected and how that's expected to come into the year?
David Obstler
Yes. In our guidance we have assumed a resumption of normal T&E and marketing events. We said previously that sort of in the 3% to 4% range. We estimate we've had cost savings due to lower-than-average T&E and marketing events. So, we've incorporated that in the guidance. We'll have to see how quickly that resumes. As we said, first priority is safety of our employees. But we've incorporated that. We've also, as we said have very aggressive hiring plans and we've incorporated that in. But as we said previously, we think the number is sort of on average around three plus in terms of COVID savings relative to T&E and marketing events as a percentage of revenues.
Mike Cikos
Great. Thank you for that. And then just, I guess, a two-part question here, but more housekeeping. The first, I know in previous quarters, and maybe I missed it on this call here, but you guys have discussed how new logo lands are typically coming in with two-plus products 70% to 75% of the time. So, first question would be, is that still the case?
And then the second question, I know that you're talking about gross retention now improving to the mid- to high-90s range. It had been mid-90s. I think before that, it was mid- to low-90s. So, can you just help us think of what are the investments or what is it you guys are doing to drive those gross retention rates up over time? And congratulations on that effort as well.
David Obstler
Thank you. On the first question, yes, the land percentage of more than one product remains similar to what we said previously, in the 70s. No change in that motion. In terms of the gross retention, with the platform expanding and the standardization, one, we see some more stickiness. And as we always have, we're focusing on both account management, technical account management, working with our clients over a long term which we've done and continue to do.
Oli?
Olivier Pomel
Yes. And to close on that, I mean, we deliver a great product that's a must have for our customers that has extremely high adoption and usage across our customer base, that delivers great value for them. And we know it delivers great value. We're not surprised by anything because we have this unbundling approach that lets us really quickly understand that what customers pay for is basically part of our platform and will be expected out of it. So that's what makes the gross retention stay up and go up over time.
Mike Cikos
Terrific. Thank you very much guys.
Operator
Thank you. I'd now like to turn the call over – back over to Olivier Pomel for closing remarks.
Olivier Pomel
All right. Thank you. Thank you all. In closing, I'll just repeat that we are very, very pleased with our performance this quarter. And I also want to thank all Datadogs around the world for their hard work in 2021. I know they're excited for in 2022 and so am I. So, thank you all.
Operator
Thank you, ladies and gentlemen. That concludes [indiscernible] thank you for participating and you may now disconnect.
