Datto CEO Tim Weller pointed to Datto Commerce, cloud and security opportunities for MSPs during the technology company's quarterly earnings call on May 12, 2021. Moreover, CFO John Abbot revealed various MSP spending trends that influence Datto's annual recurring revenue.
Among the key takeaways from the call.
1. Data Protection & RMM (Remote Monitoring and Management) Software: Datto saw strong demand for its BCDR (business continuity and disaster recovery) products and strong growth in its SaaS protection and RMM products, "driven by the powerful trends of digital transformation and cyber resilience," Weller said.
Wall Street had been watching the BCDR demand closely, since some of the sales involve on-premises storage appliances. For some vendors, demand for in-office hardware declined during the coronavirus pandemic -- which prompted work-from-home (WFH) customers to increasingly embrace direct-to-cloud backup.
2. Datto Commerce: The sales quoting and procurement tool, based on the $4.4 million Gluh acquisition of 2020, launched in the North America market. The real-time quoting and procurement platform for MSPs "increases their efficiency and profitability," Weller said. Datto Commerce will work with virtually any PSA (professional services automation) and RMM platform that MSP partners leverage, he added.
Wall Street analysts were particularly curious about Datto Commerce during the earnings call. Although Datto has emphasized the platform's automation benefits, financial analysts poked and prodded to learn how the system may drive additional revenue opportunities for MSPs and Datto.
Datto Commerce could potentially automate and speed sales pipelines from Datto and distributors through MSPs to end-customers. Along the way, Datto may end up competing in some ways against Pax8, ConnectWise Marketplace, ConnectWise Sell (formerly Quosal), and Quotewerks, ChannelE2E believes.
Moreover, there could be competition involving Ingram Micro’s recently acquired Harmony PSA platform, which tucked into Ingram’s CloudBlue software business.
3. Datto Azure Continuity: This new service is on-track for beta testing this quarter (Q2), Weller said. Although Datto continues to maintain its own cloud, the extension into Microsoft Azure will provide a key opportunity for many MSPs that have so far failed to monetize the public cloud service, Weller indicated.
Weller could have a point: Most MSPs in the SMB sector have been SaaS-focused -- prompting Microsoft 365 and other business productivity apps. Infrastructure and Platform as a Service (IaaS and PaaS) require deeper levels of expertise for MSPs to productize and monetize. So far, only a handful of companies (such as Nerdio with Windows Desktops as a Service) has solved that challenge for MSPs. Datto Azure Continuity may further address those challenges for MSPs.
4. Security and Ransomware Mitigation: Weller touched on multiple points, stating...
- "Continuity used to be primarily providing protection against server crashes, internet outages or the occasional natural disaster, now as defense against active cyber threats. I've always described Continuity of the last line of defense of security," Weller said.
- "With our launch of Ransomware for RMM and Q4 in the acquisition of BitDam in Q1, we are accelerating our path in the other areas of security beyond just recovery. With each new offering we plan to bring MSP's strong margin opportunities, and they protect our SMB clients and monetize security."
- MSPs leverage the new ransomware detection and isolation feature for Datto RMM to protect nearly 500,000 customer endpoints -- almost double from less than a quarter ago.
5. MSP Partner Base: Datto now has more than 17,300 MSP partners, a net increase of 600 year-over-year and an increase of 300 sequentially, CFO John Abbot said. "We're encouraged by the return to growth in MSP partners in the first quarter, and believe the increased churn associated with the pandemic is now largely behind us."
6. MSP Spending With Datto: More than 1150 MSPs now spend more than $100,000 with Datto (in terms of annual recurring revenue), up from 1000 a year ago, Abbot said.
7. Datto Business Performance: For Q1 of 2021, Datto announced:
- Revenue of $144.9 million, up 16 percent from Q1 of 2020.
- Net income of $15.3 million, up from $1.4 million in Q1 of 2020.
Datto’s Q1 2021 earnings generally met Wall Street’s expectations, and revenues exceeded expectations, according to SeekingAlpha.
MSPs and Small Business IT Spending
In many ways, Datto is a bellwether for the MSP-driven SMB technology sector. But additional pure-play bellwethers are on the way.
For instance, SolarWinds is expected to spin off its MSP software business -- called N-able -- sometime during the first half of this year. As a result, N-able is expected to trade as a standalone, publicly held. company.
