Datadog Inc (NASDAQ:DDOG) shares tumbled more than 18% on Thursday even after the software company delivered what analysts called a high-quality quarter, as investors focused on decelerating bookings growth and softer-than-expected third-quarter guidance.
Datadog's revenue grew 35.6% year-over-year in the second quarter, ahead of the company's 29-31% guidance range and accelerating from 32% growth in the first quarter.
Jefferies analysts noted the 11% sequential revenue increase was the strongest since the second quarter of 2022.
Datadog posted non-GAAP operating margin of 23% and free cash flow margin of 25%, with Jefferies noting the strength was broad-based, as non-AI customer revenue growth accelerated to the high-20% range and new-logo bookings more than doubled year-over-year, now contributing roughly 30% of revenue growth. The company also renewed a nine-figure contract with its largest customer, which Jefferies said removes a key overhang on the stock.
Despite the results, investors zeroed in on guidance. Datadog raised its full-year 2026 revenue guidance by $140 million following a $46 million second-quarter beat, implying about 30% growth versus a prior outlook of 25-27%. However, third-quarter guidance of 28-29% year-over-year growth came in below expectations and implies just 1.7% sequential growth at the midpoint, compared with 2.6-2.7% in the prior two years' third-quarter guides.
Remaining performance obligations, a measure of contracted future revenue, grew 43% year-over-year to $3.47 billion but declined sequentially for the first time in multiple years, decelerating from 51% growth in the first quarter. Current RPO growth also moderated to around 40% from the mid-40%s.
Jefferies said the RPO deceleration warrants attention given stronger commentary around bookings, new-logo activity and initial customer ramps, though it noted longer contract durations can affect comparability.
Jefferies maintained its price target of $260, based on 17 times projected 2027 revenue, saying risk/reward has become more balanced following the pullback.