We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Reasons to Stay Away From Datadog Stock Despite Q4 Earnings Beat
Read MoreHide Full Article
Key Takeaways
Datadog beat Q4 estimates, but 2026 revenue guidance signals growth slowing to 18-20%.
DDOG projects softer core growth and faces margin pressure from heavy R&D spending.
Datadog trades at a premium of 10.75x forward P/S, well above industry average.
Datadog (DDOG - Free Report) reported fourth-quarter 2025 results, wherein both revenues and earnings exceeded the Zacks Consensus Estimate. DDOG’s fourth-quarter revenues came in at $953.19 million, representing 29% year-over-year growth and surpassing the consensus estimate by 4.22%. Adjusted earnings per share of 59 cents also topped the consensus estimate by 7.27%.
The company posted record bookings of $1.63 billion, up 37% annually. While these headline numbers certainly look impressive, a closer examination reveals several concerns that should give investors pause before adding this stock to their portfolios in 2026.
Despite the strong fourth-quarter beat, Datadog’s forward guidance paints a decidedly more cautious picture. Management guided for first-quarter 2026 revenues of $951 million to $961 million, implying 25% to 26% year-over-year growth, while full-year 2026 revenue guidance of $4.06 billion to $4.10 billion points to only 18% to 20% growth — a notable deceleration from the 28% full-year growth achieved in 2025.
The Zacks Consensus Estimate for DDOG’s 2026 earnings is pegged at $2.27 per share, unchanged over the past 30 days. The earnings figure suggests a 10.73% increase year over year.
The company projected non-GAAP operating income of $840 million to $880 million and non-GAAP earnings per share in the range of $2.08 to $2.16 for 2026. Capital expenditures and capitalized software are expected to consume 4% to 5% of revenues, while net interest and other income is expected to be approximately $140 million. Management explicitly noted that its full-year model assumes the core business, excluding its largest customer, grows at least 20%, with a conservative assumption applied for that top account. This measured outlook, following a blowout quarter, suggests that management sees headwinds ahead that investors should not dismiss lightly.
Datadog continues to invest aggressively in research and development and go-to-market initiatives, which may pressure operating margins in the near term. While the company reported a non-GAAP operating margin of approximately 23.4% and free cash flow of $291 million in the fourth quarter, full-year net income actually declined to $107.74 million despite revenue growth.
The company launched more than 400 new features and capabilities in 2025, including its Bits AI SRE Agent, Storage Management, Feature Flags, and Data Observability — all of which require sustained investment to gain traction. As Datadog expands its product portfolio into areas like AI observability, cloud security, and service management, the risk of spreading resources too thin while competing against well-capitalized rivals increases considerably.
Stretched Valuation and Intensifying Competitive Landscape
Datadog shares have declined 31.5% in the past three months, underperforming the Zacks Computer and Technology sector’s return of 2.2% and Zacks Internet Software industry’s decline of 7.1%.
DDOG Underperforms Sector in 3 Months
Image Source: Zacks Investment Research
DDOG is operating in a more competitive observability landscape as established enterprise vendors intensify their push into application performance monitoring and log analytics. IBM (IBM - Free Report) expands its observability suite through Instana, making IBM a formidable threat, while IBM’s hybrid cloud push intensifies pressure. Dynatrace (DT - Free Report) remains a close rival, as Dynatrace’s AI-powered platform and its government presence sharpen competition. Cisco Systems (CSCO - Free Report) leverages Splunk, positioning Cisco Systems as a consolidation force, while Cisco Systems’ integrated offerings challenge Datadog.
Currently, Datadog’s forward 12-month P/S ratio hovers around 10.75x, well above the industry’s 4.02x, suggesting anticipated growth is priced in. The Value Score of F reinforces this stretched valuation profile.
DDOG Trades At a Premium P/S Valuation
Image Source: Zacks Investment Research
Conclusion
While Datadog’s fourth-quarter earnings beat certainly grabbed headlines, decelerating growth guidance, rising expenses and a stretched valuation collectively paint a troubling picture. Investors would be wise to exercise caution and consider staying on the sidelines until these fundamental concerns show meaningful signs of resolution.
View the Zacks #1 Rank List
Image: Shutterstock
3 Reasons to Stay Away From Datadog Stock Despite Q4 Earnings Beat
Key Takeaways
Datadog (DDOG - Free Report) reported fourth-quarter 2025 results, wherein both revenues and earnings exceeded the Zacks Consensus Estimate. DDOG’s fourth-quarter revenues came in at $953.19 million, representing 29% year-over-year growth and surpassing the consensus estimate by 4.22%. Adjusted earnings per share of 59 cents also topped the consensus estimate by 7.27%.
The company posted record bookings of $1.63 billion, up 37% annually. While these headline numbers certainly look impressive, a closer examination reveals several concerns that should give investors pause before adding this stock to their portfolios in 2026.
Conservative Forward Guidance Signals Growth Deceleration
Despite the strong fourth-quarter beat, Datadog’s forward guidance paints a decidedly more cautious picture. Management guided for first-quarter 2026 revenues of $951 million to $961 million, implying 25% to 26% year-over-year growth, while full-year 2026 revenue guidance of $4.06 billion to $4.10 billion points to only 18% to 20% growth — a notable deceleration from the 28% full-year growth achieved in 2025.
The Zacks Consensus Estimate for DDOG’s 2026 earnings is pegged at $2.27 per share, unchanged over the past 30 days. The earnings figure suggests a 10.73% increase year over year.
The company projected non-GAAP operating income of $840 million to $880 million and non-GAAP earnings per share in the range of $2.08 to $2.16 for 2026. Capital expenditures and capitalized software are expected to consume 4% to 5% of revenues, while net interest and other income is expected to be approximately $140 million. Management explicitly noted that its full-year model assumes the core business, excluding its largest customer, grows at least 20%, with a conservative assumption applied for that top account. This measured outlook, following a blowout quarter, suggests that management sees headwinds ahead that investors should not dismiss lightly.
Datadog, Inc. Price and Consensus
Datadog, Inc. price-consensus-chart | Datadog, Inc. Quote
Rising Operating Expenses and Margin Pressures
Datadog continues to invest aggressively in research and development and go-to-market initiatives, which may pressure operating margins in the near term. While the company reported a non-GAAP operating margin of approximately 23.4% and free cash flow of $291 million in the fourth quarter, full-year net income actually declined to $107.74 million despite revenue growth.
The company launched more than 400 new features and capabilities in 2025, including its Bits AI SRE Agent, Storage Management, Feature Flags, and Data Observability — all of which require sustained investment to gain traction. As Datadog expands its product portfolio into areas like AI observability, cloud security, and service management, the risk of spreading resources too thin while competing against well-capitalized rivals increases considerably.
Stretched Valuation and Intensifying Competitive Landscape
Datadog shares have declined 31.5% in the past three months, underperforming the Zacks Computer and Technology sector’s return of 2.2% and Zacks Internet Software industry’s decline of 7.1%.
DDOG Underperforms Sector in 3 Months
Image Source: Zacks Investment Research
DDOG is operating in a more competitive observability landscape as established enterprise vendors intensify their push into application performance monitoring and log analytics. IBM (IBM - Free Report) expands its observability suite through Instana, making IBM a formidable threat, while IBM’s hybrid cloud push intensifies pressure. Dynatrace (DT - Free Report) remains a close rival, as Dynatrace’s AI-powered platform and its government presence sharpen competition. Cisco Systems (CSCO - Free Report) leverages Splunk, positioning Cisco Systems as a consolidation force, while Cisco Systems’ integrated offerings challenge Datadog.
Currently, Datadog’s forward 12-month P/S ratio hovers around 10.75x, well above the industry’s 4.02x, suggesting anticipated growth is priced in. The Value Score of F reinforces this stretched valuation profile.
DDOG Trades At a Premium P/S Valuation
Image Source: Zacks Investment Research
Conclusion
While Datadog’s fourth-quarter earnings beat certainly grabbed headlines, decelerating growth guidance, rising expenses and a stretched valuation collectively paint a troubling picture. Investors would be wise to exercise caution and consider staying on the sidelines until these fundamental concerns show meaningful signs of resolution.
DDOG currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.