Key Takeaways
- Datadog shares sank 13% today as a flat fourth-quarter revenue outlook overshadowed 35% revenue growth and an earnings beat.
- Datadog has beaten the top of its revenue guidance four quarters running, so the flat outlook looks like its usual caution.
- Rival Dynatrace still guides higher, and Cloudflare reports Thursday.
- Datadog’s forward P/E was below its five-year average even before the drop.
Datadog (DDOG) beat Wall Street’s revenue and earnings estimates this morning, and its stock sank 13% anyway.
The problem: a fourth-quarter revenue outlook no higher than the quarter it just reported. If cloud spending is cooling, Dynatrace (DT), Datadog’s closest listed rival, and Cloudflare (NET), which fell alongside Datadog in last week’s software selloff, would feel it too.
A big quarter with a flat finish
Datadog’s third quarter was strong:
- Revenue of $1.20 billion, up 35%, against the $1.14 billion analysts expected
- Adjusted EPS of $0.81, against estimates of $0.64
- A non-GAAP operating margin of 28%, up from 23% a year earlier
But it guided fourth-quarter revenue to $1.19 billion to $1.20 billion, growth of 25% to 26%.
Going into the report, analysts expected revenue to keep climbing through 2028:
The 23% growth they expect for 2027 is below even the fourth quarter’s guided pace.
Datadog guides low, then beats
Datadog’s revenue has risen every quarter for two years:
The third quarter added another $76 million. Datadog had guided it just $14 million to $24 million above the second quarter, and beat the top of that range by $52 million. In each of the three quarters before, it had beaten the top of its range by $37 million to $45 million.
My read: the flat fourth-quarter outlook is the same caution.
TIKR tracks 47 analysts on Datadog. How many say “Buy”?
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Dynatrace isn’t seeing a slowdown either
Dynatrace’s revenue grew 17% to $580 million in the quarter ended Sept. 30, and it guided the next quarter higher, to $591 million to $596 million. If spending were slowing across the market, I’d expect that outlook to be flat too.
Cloudflare reports Thursday. It guided third-quarter revenue to $736 million to $737 million, up from $696.1 million in the second quarter. Will its fourth-quarter outlook step up, as Datadog’s didn’t?
The price got better
Before today’s drop, Datadog traded at 82x forward earnings:
That’s below its five-year average of 104x, though well above February’s 47x. Today’s drop takes it to about 72x.
Datadog still has to keep beating its own guidance. But a company that just grew 35% and widened its margin doesn’t look broken to me.
Of course, if fourth-quarter revenue lands inside the guided range when Datadog reports in February, the market will have read this one right.
So what is Datadog stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
