Why Datadog Stock Is Plummeting Today

Shares of Datadog Inc (NASDAQ: DDOG) are trading lower on Thursday. The company's stock lost 8.4% as of noon ET but lost as much as 11.6% earlier in the day. The drop comes as the S&P 500 gained 0.5%, and the Nasdaq composite was up 0.8%.

Datadog, a software-as-a-service company that helps companies analyze and monitor their data, reported earnings before the market opened today. However, the company's strong growth in 2024 wasn't enough to overcome weak guidance, leading to a drop in share price.

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The numbers

The tech company's Q4 2024 earnings report showed mostly positive numbers, delivering earnings per share (EPS) of $0.49, beating analyst estimates of $0.43, on sales of $737.7 million, again surpassing Wall Street's target. Top-line revenue grew 25% year over year (YOY). For the full year, Datadog reported operating income of $674 million and EPS of $1.82 on sales of $2.68 billion, up 26% YOY.

Despite this positive growth, the company's guidance disappointed investors. For fiscal year 2025, the company expects between $3.175 and $3.195 billion in sales, well under the $3.24 billion Wall Street was expecting. The target set for operating income -- a range of $655 million to $675 million -- means the key metric will likely fall over the next year.

What's next

The company worked to deliver new key features this year and looks to do the same in the year ahead. The proliferation of artificial intelligence solutions means the company must innovate to maintain its relevance. The weakened guidance may reflect this growing competition. With a price-to-earnings ratio of nearly 270, the company's stock carries a hefty premium. Given this and the company's stiffening competition, I may look elsewhere to invest for now.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Datadog. The Motley Fool has a disclosure policy.