Datadog Revenue Jumps 35% to $1.20 Billion, but Flat Q4 Outlook Sends Shares Tumbling

Datadog reported third-quarter revenue of $1.20 billion, up 35% year over year, according to the company's earnings release as reported by Yahoo Finance. TIKR reported that the revenue figure topped the $1.14 billion analysts had expected and that adjusted earnings of $0.81 per share beat a $0.64 consensus estimate. Yet the cloud monitoring company guided fourth-quarter revenue to $1.19 billion to $1.20 billion — growth of roughly 25% to 26%, per TIKR — with the upper end matching rather than exceeding Wall Street's estimate for the period, TradingView reported, citing Seeking Alpha. Investors responded by selling the stock sharply.

The divergence between a clear quarterly beat and a merely in-line forecast produced a sharp share-price reaction. TIKR reported Datadog shares sank 13% on the day of the report, while TradingView, citing Seeking Alpha, reported an 18% premarket decline following the guidance release. The two figures reflect different measurement windows but point to the same underlying reaction: in our reading of the reported data, a growth deceleration signal outweighed a headline beat.

What the Guidance Reveals About Slowing Momentum

The fourth-quarter outlook's upper bound of $1.20 billion matched, rather than beat, analysts' estimates for the period, TradingView reported. TD Cowen, as cited by TradingView, noted the guidance implied only about $3 million in sequential revenue growth from the third quarter and flagged potential declines in usage among some of Datadog's largest customers as an issue to watch going forward.

Customer-growth data lend some support to that caution. Datadog had about 4,860 customers with annual recurring revenue of $100,000 or more as of September 30, up 20% from roughly 4,060 a year earlier, according to the company's release. But the pace of additions is slowing: Datadog added 140 net new customers at that spending tier during the quarter, down from 170 in the prior quarter and 33% lower than the year-ago period, per TradingView's reporting. Fewer large customers being added, combined with TD Cowen's flagged concern about usage trends among existing large accounts, offers a more granular explanation for why a 35% revenue quarter produced only a flat near-term forecast.

Neither the earnings release nor the analyst commentary breaks out how much of the fourth-quarter guidance reflects demand tied specifically to AI workloads versus core infrastructure monitoring. Datadog's release, as reported by Yahoo Finance, quoted CEO Olivier Pomel saying the company is "seeing strong adoption across our platform as customers scale their digital operations and use of AI," and the company highlighted its AI Research team's launch of Scout 1.0, its first specialized model for investigating production issues, which now powers a feature called Bits Investigation. That commentary signals AI-related product activity but does not quantify its contribution to the quarter's results or the outlook.

Profitability and Full-Year Guidance Painted a Brighter Picture

Away from the top-line deceleration, Datadog's profitability metrics improved. Non-GAAP operating margin rose to 28% from 23% a year earlier, a five-percentage-point improvement, according to TIKR. Using TIKR's reported figures as our calculation, that represents a 21.7% relative increase ((28-23)/23 x 100). The company also generated $290 million in operating cash flow and $251 million in free cash flow during the quarter, per the earnings release.

Full-year guidance came in above estimates on both revenue and earnings. Datadog forecast full-year revenue of $4.515 billion to $4.525 billion, above the $4.47 billion analysts had expected, and full-year adjusted earnings of $2.73 to $2.75 per share, exceeding the $2.53 consensus, TradingView reported. Using the reported quarterly figures as our calculation, the $0.81 adjusted EPS result exceeded the $0.64 estimate by 26.6% (($0.81-$0.64)/$0.64 x 100), underscoring that the earnings beat was not a marginal one even as the revenue outlook disappointed.

Context From a Peer and From Datadog's Own Track Record

TIKR drew a contrast with rival Dynatrace, which reported 17% revenue growth to $580 million for its quarter ended September 30 and guided its next quarter higher, to $591 million to $596 million. TIKR suggested that comparison argues against a broader cloud-spending slowdown, framing Datadog's flat outlook as more company-specific than sector-wide.

TIKR also noted that Datadog has beaten the top end of its own revenue guidance in each of the four preceding quarters, characterizing the flat fourth-quarter forecast as consistent with the company's historical pattern of conservative guidance rather than necessarily a sign of a structural slowdown. Still, TIKR reported that analysts it tracks expect 2027 revenue growth of 23%, a figure below even the fourth quarter's guided pace, which tempers the conservative-guidance interpretation somewhat.

Valuation Reset After the Selloff

Before the post-earnings decline, Datadog traded at 82 times forward earnings, according to TIKR, below its five-year average of 104 times but well above the 47 times multiple the stock carried in February. TIKR reported that the day's drop brought the multiple down to approximately 72 times. This is a description of valuation contraction following the news, not a projection of where shares will trade going forward.

Bottom Line

Datadog's third quarter delivered a clear beat on both revenue and earnings, alongside expanding margins and strong free cash flow generation. The market's negative reaction centered almost entirely on the fourth-quarter outlook, which merely matched estimates rather than exceeding them, compounded by slowing net additions of large customers and TD Cowen's flagged concern about usage trends at the top of the customer base. Whether this represents a durable deceleration or another instance of Datadog's historically conservative guidance, as TIKR characterized it, will likely become clearer as subsequent quarters either confirm or reverse the pattern in large-customer growth.