QS Research · Michael Burry's Scion Capital analyst template · 2006
Datadog, Inc. (DDOG)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: SHORT
Conviction medium · base case -35% · downside -53% · upside +10%
Using section 13’s TTM-to-Sep-30-2026 base ($4.28B revenue, $96.8M EBIT, $1.23B FCF), I value DDOG at 10x EV/Sales—below its 15.49x quote (N20) and inside the 7.22x–17.18x profitable-peer range: 10 × $4.28B = $42.80B EV, plus $0.881B cash less $0.321B leases = $43.36B equity, / 375.01M shares = $115.6, or -35% from $179.04 (N1). The same base at 7.22x gives ~$84 (-53%) and at 17.18x gives ~$198 (+10%), so the short rule is met, but the positive upside caps conviction at medium. The market still pays 15.49x sales (N20) and 256.3x TTM P/E (N23) for a business whose Q4 guide decelerates to 25–26% growth and whose largest AI customer is cutting usage; TTM EBIT is only $96.8M (N10) and 9M 2026 SBC of $654M dwarfs $87M operating income. I would short, with the main risk being a re-rating if the customer cut proves contained.
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): 404.2x
- P/E (TTM): 256.3x
- Price / book: 14.24x
The 15 boxes
- ✓ 1. Long-form business notes
Datadog sells subscription access to a cloud-native observability platform (infrastructure monitoring, APM, logs, UX, network, security, incident management) under a land-and-expand, largely self-service model; subscription terms are mostly monthly or annual. Revenue compounded from $603.5M in FY2020 to $3.43B in FY2025 with gross profit of $2.74B, but the operating line is not consistently profitable: operating income was -$44.4M in FY2025 after +$54.3M in FY2024. FY2025 net income of $107.7M and pre-tax income of $127.0M sit well above the -$44.4M operating result, so the GAAP profit is driven by non-operating items, not the operating business. Cash generation remains the strongest fact: operating cash flow of $1.05B in FY2025 against capex of $49.6M.
- ✓ 2. Competitive advantage
Datadog shows the revenue and gross-profit profile of a well-priced platform (FY2025 gross profit $2.74B on revenue $3.43B) and heavy cash generation (FY2025 operating cash flow $1.05B, capex $49.6M), but it has not converted that into operating profit: GAAP operating income was negative in five of six years FY2020-FY2025, and the FY2025 net income of $107.7M came from below the operating line (pre-tax $127.0M against a $44.4M operating loss). Competition is broad and named — Cisco, New Relic, Dynatrace, Elastic, IBM, Microsoft, SolarWinds and the hyperscalers' native tools — and the 10-K itself concedes many rivals have greater financial resources and brand recognition. Lock-in looks usage-driven rather than contractual (subscriptions primarily monthly or annual with no renewal obligation), and legal IP protection is thin, so the advantage rests on platform breadth and product velocity, not on a licence, network or scale moat.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue grew 35% to $1.197B and 9M 2026 revenue grew 34% to $3.325B; gross margin held at 80% in Q3 but slipped to 79% for 9M 2026. Operating income turned positive at $74.706M in Q3 2026 and $87.488M in 9M 2026, but net income also includes large other income and stock-based compensation is far larger than operating income. Cash generation was strong, with 9M 2026 free cash flow of $818.4M, while management flagged reduced usage from its largest customer and risk factors still cite the operating-loss history.
- ✓ 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.