Episode Details

Datadog, Inc. (DDOG) Q2 2026 — Revenue $1,121.5M UP 35.6% and ACCELERATING from 32.2%. Non-GAAP EPS $0.65 vs a ~$0.583 bar. Non-GAAP operating margin 22.9% vs 19.8%. FCF $278.7M. Both guides RAISED. The stock fell ~17% anyway, to roughly $234. Datadog grew revenue 36%, beat earnings by 11%, expanded non-GAAP operating margin 310bps to 22.9%, and RAISED both guides. The stock fell about 17%, to roughly $234. Nothing in the filing broke - the price did. It had run 175.9% off its February low and set a record high TWO DAYS before the print. That is profit-taking, not a valuation reset. Even so, our DCF says ~$140. THE CALL: OVERVALUED (3/5, AN OUTSTANDING BUSINESS, AT A PRICE THAT ALREADY KNOWS IT) — base-case value ~$140.0 vs ~$234.18 today. KEY METRICS: - THE CALL: OVERVALUED 3/5, fair value ~$140 against the ~$234 post-print price (-40%). Street: 48 analysts, 40 Buy / 7 Hold / 1 Sell, $265 average (+13%), low $139, high $320. Base $111 (2026 owner earnings $286M, revenue +28% decaying to 8%, 10.5% discount, 3.5% terminal); bull $211; bear $51. Even the BULL case sits below today's price. Reverse DCF: $234 needs revenue compounding 25% a year for NINE straight years to $34.1B AND a 38% FCF margin with stock comp down to 6% of revenue. Both, not either. - THE PRINT: Revenue $1,121,454k, +35.6% - and ACCELERATING from +32.2% in Q1 2026. Non-GAAP EPS $0.65 against a ~$0.583 bar, an 11.4% beat. Non-GAAP operating income $257,031k, a 22.9% margin against 19.8%. Free cash flow $278,704k, a 25% margin against 20%. About 4,720 customers with $100k+ ARR, up 23% from ~3,850. Cash and securities $5.0B against $986M of converts = $4.0B net cash. Rule of 40 score 58.5. Revenue, EPS and BOTH guides beat - this was NOT a beat against a cut bar. - GAAP OPERATING INCOME WAS $5,455k - a 0% margin on $1.12B of revenue. The $251,576k gap to the $257,031k non-GAAP line is 87.5% ONE item: stock-based compensation of $220,251k. Add employer payroll tax on that same stock, $27,643k (11.0%), and 98.5% of the entire adjustment is compensation. Acquired intangibles and M&A costs are the last $3,682k (1.5%). Weighted-average diluted shares went 358,725k to 371,023k, up 3.4% in a year, with NO buyback offsetting it - just $2.8M of option proceeds and $39.1M from the ESPP going the other way. - FREE CASH FLOW AFTER STOCK COMP IS $58.5M, NOT $278.7M. Charge the $220,251k of quarterly stock compensation against $278,704k of FCF and owner earnings are $58.5M for the quarter. A year ago that same arithmetic was NEGATIVE - $165,353k of FCF against $180,462k of SBC - so it is improving fast, and SBC fell from 21.8% to 19.6% of revenue. At ~$234 the enterprise value of ~$82.9B is 290x our 2026E owner earnings of $286M, 72.9x FCF of ~$1,137M, 18.6x guided revenue of $4.46B, and 93x guided non-GAAP EPS of $2.52. - THE GUIDE WAS RAISED, AND IT STILL IMPLIES DECELERATION. Q3 2026 guided to $1.135-1.145B, ~2.9% above consensus - but against Q3 2025 revenue of $885,651k that midpoint is +28.7%, against the +35.6% just delivered. FY2026 of $4.45-4.47B is +30.1% on FY2025's $3,427,158k, yet H1 2026 already grew +34.0% ($2,127,880k vs $1,588,313k), leaving H2 at ~+26.8%. Gross margin fell from 79.9% to 78.6% as cost of revenue grew +44.7% on AI compute. Datadog sandbags - but do not assume it for free at 93x. - SOURCE: Form 8-K filed 2026-08-06, accession 0001628280-26-053829, ACCEPTED 07:07:37 Eastern - BEFORE the open - Exhibit 99.1. The $283.17 price is the Aug 5 SETTLED close, NOT the reaction; the ~17% move to ~$234 is the Aug 6 print-day reaction. What to watch: UP: gross margin stabilising above 79%, stock compensation guided below 15% of revenue, or a Q4 above $1.25B. BEAR: revenue growth back below 25%, gross margin under 77%, or another year of diluted shares rising ~3% with no buyback at all. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.