Datadog Shares Fall Despite Q3 Beat as Fourth-Quarter Outlook Disappoints

Datadog shares fell sharply on Wednesday, 4 November, even though the cloud-monitoring company beat third-quarter estimates, as its fourth-quarter revenue outlook came in roughly flat with the quarter just reported.

Datadog reported adjusted earnings of $0.81 a share against a $0.64 consensus, and revenue of $1.20 billion against expectations of $1.14 billion, up 35% from $885.7 million a year earlier, according to Investing.com.

The outlook

The company guided to fourth-quarter revenue of $1.19 billion to $1.20 billion, a midpoint slightly below the third quarter's roughly $1.197 billion. It expects fourth-quarter adjusted earnings of $0.69 to $0.71 a share, above the $0.64 consensus cited by Investing.com. For the full year it guided to revenue of $4.515 billion to $4.525 billion and adjusted earnings of $2.73 to $2.75 a share.

Truist analyst Miller Jump, who rates the stock Buy, said that "while the quarterly results exceeded our expectations, the guide continues to disappoint," with the Q4 guide implying revenue growth of 25.4% year on year, Investing.com reported. TD Cowen's Andrew Sherman called the outlook "just in line," noting that the high end implies just $3 million of growth over the third quarter, according to MarketWatch.

How far the shares fell

Before the open, shares were down 12.48% at $192.99, from a previous close of $220.52, according to an Investing.com earnings-call report. Investing.com said they were down 11% shortly after the open. A Special Situations News post on X put it this way: "Datadog Stock Drops 17% Despite Strong Q3 Earnings Beat". The figures reflect different moments in a volatile session.

Margins and cash

Operating margin rose to 28% from 23%, according to the call transcript. Datadog generated $290 million in operating cash flow and $251 million in free cash flow in the quarter, had about 4,860 customers with annual recurring revenue of at least $100,000, and held $5.2 billion in cash and securities. Its Infrastructure Monitoring business passed $2 billion in annual recurring revenue.

The largest customer

On the call, management said the fourth-quarter guidance assumes only the contractual minimum from Datadog's largest customer, even though that customer spent above its minimum in the third quarter. Spending above the minimum would not be captured in the outlook.

This article is for information only and is not investment advice.