Why Datadog Stock Took a Dive Today
Key Points
Datadog delivered sales and profits that beat expectations and raised its guidance.
The cloud monitoring and security specialist also reported strong operational results.
However, the revised guidance failed to inspire investors.
Shares of Datadog (NASDAQ:DDOG) were sharply lower Wednesday, diving as much as 14.6%. As of 11:11 a.m. ET, the stock was still down 13.8%.
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The catalyst that sent the cloud monitoring, analytics, and security company lower was the company's quarterly financial report, which failed to inspire investors.
Image source: The Motley Fool.
Beat and raise
For the third quarter, Datadog reported revenue of $1.2 billion, up 35% year over year, and adjusted earnings per share (EPS) of $0.81, up 47%.
For context, analysts' consensus estimates called for revenue of $1.14 billion and adjusted EPS of $0.64, so Datadog exceeded expectations by a wide margin.
Helping drive the results was robust growth among customers spending $100,000 or more per year in annual recurring revenue (ARR), which grew 20% to 4,060.
Management also noted that Datadog was recognized in the 2026 Forrester Wave as a Leader in AI Ops Platforms for the second consecutive year, earning the highest possible marks for innovation, roadmap, and AI governance. It was also cited in Gartner's 2026 AI Vendor Race report as the "company to beat" for observability platforms.
The future looks bright
If the company's impressive financial and operational performance weren't enough, Datadog raised its forecast for the remainder of the year. Management's full-year 2026 outlook calls for revenue of $4.52 billion and adjusted EPS of $2.74, both at the midpoint of its guidance, representing growth of 32% and 34%, respectively.
Given the beat-and-raise quarter, why is Datadog stock sliding? Despite raising its outlook, the devil is in the details. For the fourth quarter, its outlook calls for revenue of $1.195 billion at the midpoint, which would represent year-over-year growth of roughly 25%. That would suggest a sequential slowdown from the company's 35% growth in Q3.
Even after today's rout, Datadog stock is selling for 76 times forward earnings and 64 times next year's expected earnings, which is a premium to be sure. As such, decelerating growth for a company with a hefty multiple hardly inspired investors, setting the stage for a sell-off.
While that certainly bears watching -- and as this quarter shows -- Datadog tends to under-promise and over-deliver. If that's the case, today's sell-off will likely represent a buying opportunity.
Danny Vena, CPA has positions in Datadog. The Motley Fool has positions in and recommends Datadog. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.