Are You Overpaying For Datadog Stock Versus Its Rivals?

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Datadog (DDOG) trades at 252.5 times earnings, the highest of any company in its software peer group that made money in each of its last four quarters, and it grows fastest of all five. Yet its operating margin trails both Dynatrace and ServiceNow, and it ranks third of five only because Elastic and CrowdStrike had operating losses, and in fiscal Q3 2026 its $118 million of net income came on just $75.8 million of operating income. Buyers appear to assume Datadog will keep outgrowing its rivals while its operating profit catches up. Is that growth lead still holding?

Datadog Grows Nearly Twice As Fast As Dynatrace

The lead is holding so far. Over its last four fiscal quarters, Datadog grew revenue 33.2%, outpacing the 17.8% for Dynatrace (DT), a fellow application software company. Dynatrace trades at 79.9 times earnings. It also turned 13.6% of its revenue into operating profit, compared with 2.3% at Datadog. The premium you pay for Datadog buys growth, not profit.

Across the rest of the group, the picture is the same. Dynatrace and ServiceNow (NOW) both grow more slowly than Datadog and cost less on earnings. No peer beats Datadog on both. Elastic (ESTC) and CrowdStrike (CRWD) each lost money in at least one of their last four quarters, so their multiples do not compare.

Is Datadog Turning Revenue Into Operating Profit?

Only partly. Datadog sells an observability and security platform that lets companies track their cloud servers, applications and GPU fleets. Customers keep buying more of this software. Management said on the November 4, 2026 call that 16% of customers now use ten or more Datadog products, up from 8% a year ago.

Datadog already turns that spending into cash. It generated $251 million of free cash flow in fiscal Q3 2026, up from $214 million a year earlier. Reported operating profit is still much smaller. On management’s adjusted basis, which leaves out some costs, third-quarter operating income was $334 million, a 28% margin. Datadog’s operating margin reached 6.3% in fiscal Q3 2026, after a loss in the same quarter a year earlier. In each of the three quarters in between, the margin stayed below 1%. So far, most of the rise in Datadog’s operating margin came in a single quarter, fiscal Q3 2026.

What Datadog Expects For Fourth-Quarter Revenue

Management expects fiscal Q4 2026 revenue of $1.19 billion to $1.2 billion, which it said would be 25% to 26% growth over a year earlier. That range is about level with the $1.197 billion Datadog reported for fiscal Q3 2026. That guide counts Datadog’s largest customer, which reduced its usage in fiscal Q3 2026, at only its minimum commitment. Excluding that customer, management said the guide implies growth in the low to mid-30s percent range, and it added that any spending above the minimum would be a beat.

So much of the slowdown in that guide comes from how management counts one customer. Management also said renewals with some large customers, at higher commitments but with volume discounts, will weigh on revenue in the short term. If Datadog’s growth did settle near the guide, you would be paying the group’s highest price on earnings for a smaller lead and a thin operating margin.

Datadog grew faster than Dynatrace and ServiceNow over the last four quarters combined, while its operating profit has only begun to rise. At this price, buyers are asking Datadog to keep growing well ahead of those peers and to turn far more of that growth into operating profit. Datadog’s reported operating margin is the number to watch when it reports fourth-quarter results, expected in February 2027.

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