Key Takeaways
- Datadog stock fell 17% in a week to $179, as a flat fourth-quarter revenue guide overshadowed 35% third-quarter growth.
- The guide assumes its largest AI customer pays only its contract minimum, while growth from everyone else is implied in the low to mid 30s.
- Datadog now has more than 850 AI customers, and it trades at 11.6x forward revenue against Palo Alto Networks’ 18x.
- The February 10 report will show whether the largest customer has found its floor.
Datadog (DDOG) closed at $179 on Friday, down 17% for the week and 40% below its 52-week high of $301.
The quarter itself was strong. The outlook was flat, because Datadog built it around one AI customer spending the bare minimum.
So the stock now trades like a verdict on a single account. The rest of Datadog’s AI business tells a broader story.
It also leaves Datadog far cheaper than Palo Alto Networks (PANW). Palo Alto considered buying Datadog earlier this year, according to The Information, and it already owns observability rival Chronosphere, bought for $3.35 billion. Palo Alto trades at 18x forward revenue, and Datadog trades at 11.6x.
A strong quarter with a flat guide
Datadog reported on November 4:
- Revenue of $1.20 billion, up 35%, against $1.14 billion expected
- Adjusted EPS of $0.81, against a $0.64 estimate
- A non-GAAP operating margin of 28%, with free cash flow of $251 million
Then came the catch. Fourth-quarter revenue is guided to $1.19 billion to $1.20 billion, which would end a long run like this…
Revenue rose every quarter in that stretch. The guide breaks the streak because of a single account.
Datadog’s largest customer, an unnamed AI company, cut usage in the third quarter but stayed above its contract minimum. The guide assumes it drops all the way to that minimum.
The AI book is getting wider
If you strip that customer out, the fourth-quarter guide implies growth in the low to mid 30s. Growth from non-AI customers also accelerated for a fifth straight quarter, to the high 20s.
The AI cohort is broadening too. Datadog now counts more than 850 AI customers, up from about 750 last quarter, and 39 of them spend more than $1 million a year.
CEO Olivier Pomel made the case on the August earnings call: “If you backed out our largest customer from our growth, you get pretty much the same growth rate as the rest of the business.”
Wall Street hasn’t given up either. The average target of $272 sits 52% above Friday’s close.
Meanwhile, the gap with Palo Alto keeps widening:
Palo Alto earns its premium partly through acquisitions like CyberArk. Datadog just grew revenue 35%, ahead of the 33% Palo Alto has guided for its current quarter.
TIKR tracks 48 analysts on Datadog. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Datadog, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Datadog’s Analyst Ratings
Cheaper, with one real caveat
Datadog’s forward P/E has dropped to about 60x, from above 100x in early October.
That’s well below its five-year average of about 104x.
The caveats are real, though. Insiders have sold steadily this year, including CTO Alexis Le-Quoc, who sold about $12 million of shares in late October. Datadog has also reportedly offered nearly $4 billion for cloud security startup Upwind, which would use roughly all of its $3.9 billion of net cash.
The bigger point is that if one AI customer can cut back, another could too. CFO David Obstler also warned that late-December vacations and code freezes can weigh on fourth-quarter usage.
My take: The selloff priced Datadog as if the largest customer’s cut will spread to everyone else, and the numbers point the other way. I’d buy at this level, while keeping in mind that the floor is only as solid as the next big AI account.
February 10 is the checkpoint. Revenue above $1.20 billion, plus a 2027 outlook above the roughly 23% growth analysts expect, would show the concentration risk has peaked.
So what is Datadog stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Datadog could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
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 stocks mentioned. Thank you for reading, and happy investing!
