TenQ

The Datadog story

Datadog provides cloud monitoring and security software, with growth depending on whether broader customer adoption can offset reduced usage by its largest AI customer.

Written from Datadog's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $268.70share price, last close
  • $96.5Bmarket value
  • 21/36TenQ Score checks passed
  • 44.2%growth a year the price assumes

The story in brief

  • Larger customers expand. Datadog had about 4,720 customers generating $100,000 or more in annual recurring revenue in June 2026, up 23% from a year earlier.
  • AI demand can fluctuate. AI-native customers contributed high single digit percentage points to annual revenue growth, but the largest customer reduced usage beginning in the third quarter of 2026.
  • Profit measures diverge. In the quarter to June 2026, GAAP operating income was $5 million compared with non-GAAP operating income of $257 million.

What drives the business

  • Datadog's subscription business depends on customers renewing and expanding their use of its cloud monitoring and security platform, with agreements primarily monthly or annual.
  • Its growth strategy combines new customers with additional products and usage among existing customers, supported by spending on platform development, sales teams and international expansion.
  • Revenue reached $1.12 billion in the quarter to June 2026, up 36% from a year earlier, while revenue over the last twelve months grew 31.5% to $4.0 billion.
  • AI-native customers have become an important growth source, contributing approximately seven percentage points to annual revenue growth in the quarter to December 2025.
  • Datadog launched Bits Code, Bits Chat and Bits Agent Builder for general availability and acquired Adaptive ML to expand its AI research and capabilities for training specialized AI agents.

What the price assumes

At $268.70, the reverse DCF implies free cash flow after stock pay grows 44.2% a year for ten years, using a 10.2% discount rate.

That compares with delivered growth of 108.0% a year over the last 5 years and the TenQ check's 56.0% bar, which slows that record halfway toward 4%.

The implied growth passes that check, but Datadog passes only 2 of 6 Value checks, with a free cash flow yield of 1.2% and a price to sales ratio of 24.3x.

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What could change the story

  • Reduced usage or weaker renewals among AI-native customers could slow growth, particularly because that group includes Datadog's largest customer.
  • Stock-based pay was $823 million against free cash flow of $1.2 billion over the last twelve months, while the share count rose 15.2% over 3 years.
  • The operating margin of 0.4% trails the TenQ sector comparison of 11.0%, leaving little operating profit to absorb spending that does not generate enough additional revenue.
  • More complex products and heavier traffic make platform reliability harder to maintain, with the widespread outage in March 2023 illustrating the potential for disruption.
  • AI-enhanced security threats could increase costs and damage customer confidence, while unauthorized access to source code repositories disclosed in April 2025 may increase vulnerability to later attacks.

What to watch next

  • For the third quarter of 2026, Datadog expects revenue between $1.135 billion and $1.145 billion and non-GAAP operating income between $260 million and $270 million.
  • For the full year 2026, it expects revenue between $4.45 billion and $4.47 billion and non-GAAP operating income between $1.01 billion and $1.03 billion.
  • The next releases will show whether growth in customers generating $100,000 or more in annual recurring revenue and broader platform usage offset the largest customer's reduced usage.
  • GAAP operating profit, stock-based pay and free cash flow will show whether expansion translates into stronger profitability beyond the non-GAAP measures.

Sources

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