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Datadog reported that its largest customer, a major AI company, has scaled back how much it uses the platform. Because Datadog charges based on how much data a customer processes, this single pullback was large enough to weigh on the company's total revenue growth for the quarter.
This highlights a specific risk for the business: while AI is a massive growth driver, it also brings concentrated risk. When one giant user changes its setup or cuts costs, it can create a sudden gap in Datadog's numbers that smaller customer wins cannot immediately fill. We are watching to see if this is a one-time adjustment or a sign that other large AI firms might also look to trim their monitoring bills.
Source: WSJ
After Datadog reported its November results, we updated our fair value and raised our projections for revenue and earnings per share for the year ahead. We moved our expectations for when the company would reach steady profitability sooner after it recorded a 6% operating margin in the quarter. We have added the risk of reduced spending from large customers that focus on artificial intelligence to what we track. We also started monitoring the cash the company spends on developing its own software, which reduced the amount of free cash flow it kept over the past three months.
Datadog brought in $1.20 billion in revenue this quarter, which is about 35 percent more than the same time last year and ahead of what analysts expected. The company also earned $0.81 per share, beating the $0.64 estimate. This growth was fueled by larger clients, with the number of customers spending over $100,000 a year rising to 4,860.
The business remains highly profitable, generating $251 million in free cash flow, which is the cash left over after paying for all operations and equipment. Management also highlighted new AI tools, including a specialized model called Scout 1.0 designed to help IT teams automate how they investigate system issues. While the stock fell on the day, the underlying business continues to expand its reach as companies move more of their work to the cloud.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
UBS raised its price target from $280 to $320, signaling confidence that the company can continue to grow its share of the IT monitoring market. This move brings the average analyst target to about $294, which is well above where the stock currently trades. While a target change is a routine adjustment, it reflects a view that Datadog's platform remains the preferred choice for companies managing complex cloud setups. Investors are looking for confirmation of this growth when the company reports its latest results on November 4.
Source: UBS
The new target sits about 20 percent above the current stock price. This move follows a similar upgrade from Bernstein last week and brings the average analyst target across all firms to about $290. These adjustments suggest growing confidence that the company is successfully capturing more spending as businesses move their work to the cloud.
Source: Oppenheimer
Management consistently sets a bar they can clear, beating their own targets for eight straight quarters while growing the business at a rapid clip. This track record suggests their forecasts are reliable and they have a firm grip on how fast their customers are spending.
| Expectation | |
|---|---|
| EPS | $0.64 |
| Revenue | $1.20B |