Datadog Slumps Despite Beating Q3 Estimates: What Wall Street Is Saying

Datadog topped third-quarter analyst estimates, but missed on billings.
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Shares of Datadog  (DDOG) - Get Report dropped Wednesday morning following its third quarter earnings that came out after the closing bell on Tuesday. 

The cloud analytics software company posted non-GAAP earnings per share of 5 cents, vs. analyst estimates of 1 cent a share, while its revenue of $154.7 million topped estimates by $10.4 million. 

However, Datadog posted billings of around $156 million, vs a $159.1 million consensus. Shares were falling 10.7% to $82.73 Wednesday morning. 

Here's what Wall Street is saying about the results:

Morgan Stanley (Equal-Weight rating maintained, PT raised from $80 to $86 )

The challenge is that 4Q guidance calling for 43-44% YoY growth suggests another pronounced deceleration which reflects prudent conservatism in light of a macroenvironment that is still challenging and fraught with risks. With a highly efficient, go-to market model coupled with a high velocity product engineering organization, we still see Datadog as a top-tier franchise in software. However, with shares still trading at ~34x CY21e sales for 39% expected growth in 2021, we look for clearer evidence on the stability of growth to get more bullish on the shares.

- Sanjit Singh

Barclays (Overweight rating unchanged, PT lowered from $136 to $115 )

We expect Datadog to consolidate the strong year-to-date gains after this print. Numbers beat consensus, but were likely slightly below buy-side expectations. The issue is that the previously discussed Q2 ARR underperformance is now feeding through to revenue and this limits the upside potential. We believe that the customer optimization that caused the Q2 headwind was temporary as evidenced in the normalization seen this quarter and the record new ARR add. 

-Raimo Lenschow

JPMorgan (Rating downgraded to Neutral from Overweight, $90 PT unchanged)

For just about any other company in software, this quarter would have been considered outstanding, but the second straight quarter of deceleration for a company that has been trading north of 40x revenue is likely to cause pressure to the stock. We still consider DDOG to be one of the best positioned companies in the DevOps space and will likely grow topline in excess of 30% the next two years, but we expect valuation to normalize toward other hyper growth names keeping performance more in line with our overall coverage.

- Sterling Auty