Datadog's stock extends steep declines in the wake of earnings

By Emily Bary

Datadog failed to top expectations with its revenue forecast

Datadog investors are looking past a revenue beat for the latest quarter.

Datadog shares are getting hit hard Wednesday in light of a ho-hum financial forecast from the maker of observability software.

TD Cowen analyst Andrew Sherman noted that Datadog's (DDOG) outlook for $1.19 billion to $1.2 billion in fourth-quarter revenue was "just in line" with what analysts were expecting. At the high end, it also implies growth of just $3 million from the $1.197 billion total recorded in the third quarter.

That revenue figure for the third quarter amounted to 35% growth from a year before, "well above" the high end of the company's forecast, according to Sherman.

Shares of Datadog were off more than 10% in morning action. They had already fallen 21% in the five days leading up to this report.

Datadog disclosed 4,860 customers with annual recurring revenue of $100,000 or more, which translates to 140 more than it had in the second quarter. But Sherman noted that the company had added 170 of these customers from the first quarter to the second quarter.

On the earnings call, he'll be looking for commentary on the growth of Datadog's core business and whether large customers are scaling back their usage, Sherman said.

Datadog is particularly viewed by analysts as levered to growth of Amazon's (AMZN) AWS cloud-computing business. The two companies have a partnership "to help organizations running on AWS monitor, optimize and secure their cloud environments," according to a press release announcing a collaboration late last year.

In a note to clients earlier this month, FBN Securities analyst Shebly Seyrafi noted the unique and mixed relationships between Datadog and the major cloud companies.

The biggest three cloud providers "are unlike any competitor" to Datadog because they simultaneously "compete with Datadog, sell it, buy it and host it," Seyrafi wrote. The companies have their own built-in observability offerings, he noted, but they also resell Datadog's software in their marketplaces.

-Emily Bary

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11-04-26 1016ET