Datadog grew revenue 35%, beat every line, and still lost 11% on a flat December guide
A 35% growth quarter and an 81-cent beat could not survive a December outlook of flat revenue at a thinner margin. The unnamed AI whale that renewed a nine-figure contract and then cut its usage is the number doing the damage.
Vincent Jiang · 4 min read
Every line beat, and the ticker fell anyway
Datadog−15.28% — Datadog, down 15.28 percent today, the New York company whose software watches everyone else's software, filed third-quarter results before the open on November 4 and beat on everything that counts 12. Revenue of $1.20 billion grew 35% from a year earlier 3. Adjusted earnings of 81 cents a share cleared the 64 cents that 11 analysts polled by Zacks Investment Research expected, and revenue topped the $1.14 billion forecast 3.
Free cash flow was $251 million, up from $214 million a year earlier, and the count of customers spending $100,000 or more a year rose to about 4,860 from about 4,060 1. By 7:25 that morning the stock was down 10.9% 3.
The raise nobody counted
Datadog lifted full-year revenue guidance to $4.515–4.525 billion from $4.45–4.47 billion, about $65 million more at the midpoints 14. On its own terms, that is the beat-and-raise the sell side asked for.
The December guide is the flat line
Then came the December quarter: revenue of $1.19–1.20 billion, level with the $1.197 billion just reported, and adjusted operating income of $280–290 million, a margin of about 24% on the guide's midpoints against the 28% just delivered 1. Investor's Business Daily read the quarter as a beat with flat sequential growth ahead, and that is exactly what the market sold 5.
The December quarter Datadog guided stops the revenue climb flat
Revenue climbed four straight quarters to $1.20B; the guide stops it there
- Revenue
- Estimate
Data
| Revenue | |
|---|---|
| Q4 '25 | $0.95B |
| Q1 '26 | $1.01B |
| Q2 '26 | $1.12B |
| Q3 '26 | $1.2B |
| Q4 '26 guide (estimate) | $1.2B |
The margin inside the December guide is thinner than the margin the release touts
The margin jumped 5 points in a year, and the guide gives most of it back
- Non-GAAP operating margin
- Estimate
Data
| Non-GAAP operating margin | |
|---|---|
| Q3 '25 delivered | 23% |
| Q3 '26 delivered | 28% |
| Q4 '26 guide implied (estimate) | 23.8% |
The margin the highlights skip
The 8-K tables carry what the release's highlights do not 1. GAAP operating income was $75 million, a 6% margin, against $334 million, or 28%, on the adjusted basis; the gap is mostly $237 million of stock compensation in the quarter, after a $750.7 million bill for all of 2025 14. Cash generation still works but is cooling: free cash flow margin was 21% in the quarter, down from 24% a year earlier 1.
Free cash flow rose for two years; the last two quarters are flat
Data
| Free cash flow | |
|---|---|
| Q2 '24 | $0.14B |
| Q3 '24 | $0.2B |
| Q4 '24 | $0.24B |
| Q1 '25 | $0.24B |
| Q2 '25 | $0.17B |
| Q3 '25 | $0.21B |
| Q4 '25 | $0.29B |
| Q1 '26 | $0.29B |
| Q2 '26 | $0.28B |
| Q3 '26 | $0.25B |
The customer Datadog will not name
The company knows who flattens a guide and does not name it. Its largest customer, a leading AI company that uses 17 Datadog products, renewed a nine-figure contract and then began cutting usage in the third quarter, and that decline is already inside the December number 6.
The rest of the book is speeding up around it: revenue from customers outside AI-native companies, meaning firms that do not build their own products on AI models, grew from 18% a year earlier to the high 20s in the second quarter 4. So the plain fact under the selling is this: Datadog's largest customer is cutting usage while every other group of its customers is accelerating.
Conservatism or ceiling
Wedbush, the analyst firm that covers Datadog, went into the print expecting another beat-and-raise after a week in which the stock fell nearly 12% on AI-spending fears and not one analyst estimate moved 4. The beat arrived, the raise arrived, and the stock still answered the bears 3. Palantir−2.58% — Palantir, down 2.58 percent today, the data-analytics software maker, fell 6% a day earlier on the same shape of quarter, a beat and a raised outlook sold down on slowing sequential growth 9.
The bulls' case: the big customer's cut is already in the number, and Datadog has beaten the top of its own revenue guidance by $37 million to $45 million in each of the last three quarters 4. The bears' case: the flat line itself, at about 82 times forward earnings, below a five-year average of 104 but priced for acceleration all the same 4.
What settles it
The December-quarter report, due in early February, and one number inside it: whether growth from customers outside AI-native companies holds in the high 20s 4. Watch the sector too, because Oracle's−0.90% — Oracle, down 0.90 percent today $20 billion financing filing and data-center bills compressing free cash flow at Alphabet+4.01% — Alphabet, up 4.01 percent today and Amazon+6.85% — Amazon, up 6.85 percent today set the mood Datadog trades in 8.
A quarter that beats on every line and still drops 11% is the market saying the story has changed: the whale is cut, the base has to carry the multiple, and the December guide says it is not carrying it yet 34.
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