QS Research · Michael Burry's Scion Capital analyst template · 2006
Datadog, Inc. (DDOG)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction medium · base case -20% · downside -35% · upside +19%
The market is not missing the largest AI customer's usage cut or the flat sequential Q4 2026 revenue guide; it is still paying 14.47x EV/Sales on $4.28B TTM revenue, 377.6x EV/EBITDA and 256.3x P/E, with operating EBIT only $96.8M and net income to common $262.0M flattered by non-operating interest. Datadog does generate real cash, $1.23B TTM free cash flow and a $5.23B cash-and-investments cushion, but that is only a 1.8% FCF yield against a $67.14B market cap. I use a base case at Microsoft's 11.30x EV/Sales, justified by the Q4 2026 deceleration and largest-customer usage cut, for about -20%; 9.0x gives about -35% downside and 17.5x gives about +19% upside. That asymmetry is unfavorable but does not meet the short rule because the base is not -30% or lower, so the stock is a watch, not a short.
Key numbers
- Share price: $179.04
- Market cap: $67.14B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $4.28B
- EV / EBITDA (TTM): 377.6x
- P/E (TTM): 256.3x
- Price / book: 14.24x
The 15 boxes
- ✓ 1. Long-form business notes
Datadog sells subscriptions to a single cloud observability platform that grew from $603.5M of revenue in FY2020 to $3.43B in FY2025, with gross profit rising from $473.3M to $2.74B and operating cash flow from $109.1M to $1.05B. The model in the FY2020 10-K is land-and-expand self-service SaaS (about 14,200 customers as of December 31, 2020, 400+ integrations), and by the FY2025 10-K subscriptions are primarily monthly or annual, revenue is recognized ratably, and an AI-native cohort containing the largest customer contributed roughly seven points of the year-over-year growth in the quarter ended December 31, 2025. Operating income has not followed revenue straight up: it was -$44.4M in FY2025 after +$54.3M in FY2024, and FY2025's positive $107.7M of net income to common sits on top of an operating loss, so the profit is not an operating result. The company also carries a $(50.2)M net loss as recently as the year ended December 31, 2022, and states it may not sustain profitability.
- ✓ 2. Competitive advantage
Datadog has scale and cash generation—FY2025 revenue $3.43B, gross profit $2.74B and operating cash flow $1.05B—but the filings do not establish a durable cost, network, licence or switching-cost moat. Operating income is thin and volatile (-$44.4M FY2025 after +$54.3M FY2024), competition is broad and includes larger rivals, and subscription terms are mostly monthly or annual with no renewal obligation. The company claims a unified-platform advantage, but the 10-K gives only qualitative factors, not quantified retention or win-rate proof.
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended September 30, 2026) was another 35% growth quarter: revenue $1.197 billion vs $885.7 million, with GAAP gross margin steady at 80% and GAAP operating income turning positive at $74.7 million (6%) from a $(5.8) million loss, while stock-based compensation of $237.2 million is what separates GAAP from the $334 million (28%) non-GAAP operating income. Management flagged reduced usage from the largest customer in Q3 2026 as a possible cause of revenue-growth deceleration, and guided Q4 2026 revenue to $1.19–1.20 billion with FY2026 revenue of $4.515–4.525 billion. Cash generation is strong — $940.4 million operating and $818.4 million free cash flow for the nine months to September 30, 2026 — and the balance sheet holds $881.2 million cash plus $4.4 billion marketable securities.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
Sign in with a QuantSignals Premium or Gold plan to read every box: each point linked to the SEC filing it came from, the bull and bear case, and the comparables. QS Research powers the signals behind FST, our autonomous trading agent.