Datadog shares drop on weak Q4 revenue outlook

Datadog Inc. shares fell 10.1% in morning trading Wednesday to $198.28 after the company issued fourth-quarter revenue guidance that pointed to slower growth.

The cloud observability and security platform reported third-quarter results that topped Wall Street expectations. Adjusted earnings per share came in at $0.81, beating the consensus estimate of $0.64. Revenue reached $1.20 billion, above the $1.14 billion estimate, and grew 35% from the same period last year.

The company's fourth-quarter revenue guidance of $1.19 billion to $1.20 billion disappointed investors. The midpoint of the range sits below the third-quarter result and suggests year-over-year growth of approximately 25% to 26%, down from the 35% growth rate just reported.

Management said it modeled its largest customer at only the contractual minimum spending commitment for the fourth quarter, even though that customer spent above the minimum in the third quarter. The company also pointed to seasonal softness typically seen in late December, including customer vacations and code freezes, as factors affecting the outlook. Pricing headwinds from early renewals of large artificial intelligence customers were cited as an additional consideration in the fourth-quarter projection.

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