Datadog shares fall 16% as investors punish slower growth outlook

Datadog shares fell 16% after the cloud monitoring and security company gave a revenue outlook suggesting growth would slow, overshadowing a stronger-than-expected second quarter. The company reported adjusted earnings of 65 cents per share, above the 59 cents analysts expected. Revenue rose 36% year-on-year to $1.12 billion, also ahead of the $1.08 billion estimate.

GAAP net income increased to $44.6 million, or 12 cents per diluted share, from $2.6 million, or 1 cent per diluted share, a year earlier. Non-GAAP operating income rose to $257 million from $164.1 million. Operating cash flow climbed to $315.9 million, while free cash flow increased to $278.7 million.

But the stock fell as investors focused on guidance. Datadog expects third-quarter revenue of $1.135 billion to $1.145 billion, implying slower growth from the second quarter, while full-year revenue is expected at $4.45 billion to $4.47 billion.


High expectations hurt the stock

The selloff came despite Datadog raising its full-year adjusted earnings outlook to $2.50 to $2.54 per share, from an earlier range of $2.36 to $2.44. Datadog shares had more than doubled this year before the results, making it one of the strongest performers in the software sector. That left little room for any sign of slowing growth.

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Investors reacted to comments that lower usage from a major artificial intelligence customer could weigh on growth. The customer recently signed a nine-figure renewal deal with Datadog, but expected usage is lower than earlier levels.

Datadog’s fall also came during a weak session for software stocks. Reuters reported that Atlassian, Salesforce, Adobe and Zscaler were also lower after earnings from some companies in the sector, while Datadog lost 16.7% as investors focused on slower third-quarter revenue growth.

Datadog provides monitoring, analytics and security tools for cloud applications. Its business has benefited from cloud migration, digital operations and rising AI workloads. But after a sharp rally, investors wanted stronger proof that growth could stay elevated.

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