Datadog shares retreat 30 per cent from highs as 2026 growth guidance is lowered
The SaaS giant reported solid Q4 figures but trimmed its full-year outlook, prompting a sharp sell-off while analysts remain divided on the stock's valuation
Datadog shares have fallen by approximately 30 per cent from their 52-week high of $201.69, with the stock currently trading around $140. The significant decline follows the release of the company's fourth-quarter financial results and a subsequent downward revision of its full-year 2026 revenue guidance. While the immediate results showed resilience, the adjustment to future expectations has altered investor sentiment regarding the firm's growth trajectory.
The company reported Q4 revenue of $953.2 million, representing a 29 per cent year-on-year increase. Non-GAAP earnings per share also came in at $0.59, beating market expectations. However, management has projected full-year 2026 revenue between $4.06 billion and $4.10 billion. This guidance implies a growth rate of 18 to 20 per cent, marking a notable deceleration compared to the 28 per cent growth achieved during 2025.
Despite the broader slowdown in the outlook, underlying metrics within the business remain robust. Customers generating over $1 million in annual recurring revenue grew by 31 per cent to reach 603, while billings rose 34 per cent. Furthermore, remaining performance obligations increased by 52 per cent to $3.46 billion, suggesting a strong pipeline of future revenue despite the lowered aggregate target.
The firm continues to expand its footprint in artificial intelligence infrastructure, now serving roughly 650 AI-native customers, including 14 of the top 20 enterprises. Its Bits AI product has attracted over 2,000 trial and paid users. Management indicated that the core business, when excluding its largest customer, is expected to grow by at least 20 per cent in 2026, with first-quarter revenue guidance projecting growth of 25 to 26 per cent, which sits above the full-year outlook.
Analyst sentiment remains largely positive, with 43 analysts rating the stock as a Buy or Strong Buy. The average Wall Street price target stands at $176.95, implying roughly 26 per cent upside from current levels. However, concerns persist regarding near-term expectations and insider selling activity. Multiple executives sold shares in early March, including CEO Olivier Pomel, which has reinforced worries about the company's immediate prospects.
Valuation multiples have adjusted to reflect the new guidance, with the stock trading at a forward price-to-earnings ratio of about 64x and a price-to-sales ratio above 13x. While the market appears to be pricing in a genuine slowdown in growth rates, the divergence between the current share price and analyst targets suggests a potential entry point for investors, provided the company can demonstrate that growth can sustain levels above 20 per cent in the coming quarters.
