Datadog Beat the Quarter, Then Guided Flat — and the Stock Fell

Datadog beat third-quarter estimates on Wednesday, but its fourth-quarter revenue guide pointed to no growth from the quarter just reported.

Revenue rose 35% to $1.197 billion in the third quarter, ended September 30. S&P analyst consensus estimates, reported by StockStory, had expected $1.14 billion in revenue.

Adjusted earnings also cleared the bar by a wide margin. Non-GAAP net income per diluted share was $0.81, against consensus of $0.64. Adjusted operating income was $334.3 million, against consensus of $268.6 million.

Non-GAAP figures strip out stock-based pay and related items. Datadog reconciles them to GAAP results, the standard accounting basis, in its release. The profit beat looks different on each basis, so the two are kept apart here.

The guide is the story

Fourth-quarter revenue guidance is $1.19 billion to $1.20 billion. The midpoint, $1.195 billion, sits just below the third quarter's $1.197 billion. In plain terms, the company guided to no sequential revenue growth.

The guide implies year-over-year growth slowing to about 25%, from 35% in the third quarter. StockStory put the implied fourth-quarter rate at 25.4%. That is still fast growth. It is not the pace the third quarter just printed.

The profit guide steps down with it. Fourth-quarter non-GAAP operating income is guided to $280 million to $290 million. That range sits below the third quarter's $334.3 million. Non-GAAP earnings per share are guided to $0.69 to $0.71.

The full-year picture still moved up. Datadog raised full-year revenue guidance to $4.515 billion to $4.525 billion. Non-GAAP operating income guidance rose to $1.095 billion to $1.105 billion. Non-GAAP earnings per share guidance rose to $2.73 to $2.75.

Profit and cash held up

On a GAAP basis, operating income was $74.7 million. A year earlier, the same line was a $5.8 million operating loss. GAAP net income was $118.3 million, or $0.32 per diluted share.

Cash generation stayed strong. Operating cash flow was $290 million, and free cash flow was $251 million. Free cash flow is operating cash flow minus equipment purchases and capitalized software costs. Cash and marketable securities totaled about $5.2 billion at September 30.

The customer base kept widening at the top end. Datadog ended the quarter with about 4,860 customers at $100,000 or more in annual recurring revenue. Annual recurring revenue is the subscription run rate. That customer count rose 20% from about 4,060 a year earlier.

"Datadog delivered a strong third quarter, with 35% year-over-year revenue growth, $290 million in operating cash flow, and $251 million in free cash flow," said Olivier Pomel, co-founder and chief executive. Pomel added: "We are seeing strong adoption across our platform as customers scale their digital operations and use of AI."

Why the shares fell anyway

Shares fell 11% to $196.81 in premarket trading on Wednesday, Barron's reported. The stock had closed Tuesday at $220.52, MoneyCheck reported. That snapshot is premarket only, taken before the regular session opened. It is not a closing price.

Barron's noted the stock had already risen 62% this year through Tuesday's close. At that level, meeting high expectations was not enough to hold the price. The fourth-quarter guide landed roughly in line with analyst expectations, not above them.

Morgan Stanley analysts Sanjit Singh and Adam Wood framed the open question, in comments reported by Barron's. "The bigger debate is whether Datadog can sustain around 30% growth ex-largest customer into 2027," they said. The analysts also said the spread of AI agents points to strong demand for Datadog's core products.

What remains unknown

What remains unknown starts with why the guide is flat. The release gives the fourth-quarter ranges without explaining the sequential pause. It does not say whether the largest customer's usage, seasonality, or caution is doing the work.

Also unknown is whether the premarket fall holds. Premarket trading is thin, and early moves often shrink or reverse after the open. Wednesday's regular-session close is the first durable read on the reaction.

The margin path is open too. The fourth-quarter profit guide steps down even as full-year guidance rises. The release does not break out how much of that step-down is investment, mix, or timing.

What to watch next

What to watch next begins with Wednesday's regular-session close. A close near the premarket level would confirm the fall. A recovery toward Tuesday's $220.52 close would say the early selling faded.

The fourth-quarter report, due early next year, is the hard test. It will show whether revenue actually lands inside the $1.19 billion to $1.20 billion guide. It should also bring the first full-year 2027 outlook.

Watch the growth debate most of all. If Datadog guides 2027 growth near 30%, the Morgan Stanley question resolves in its favor. A guide in the low 20s would confirm the slowdown the premarket priced in.