Datadog, Inc. (DDOG) stock intrinsic value fair value estimate & owner earnings analysis

Datadog sells a subscription monitoring and security platform that lets companies watch their software, servers and cloud usage. Revenue was $3,427M in 2025, up 28% from $2,684M, and $2,128M in 2023. About 71% of sales are booked in North America (the United States alone was $2,320M) and about 29% elsewhere. Customers pay in advance or on usage contracts, and contracted revenue not yet delivered was $3,461M at the end of 2025 versus $2,273M a year earlier, most of it to be recognized within 24 months. Customers expanded spending by about 20% a year on average (trailing net retention of about 120%). In the first half of 2026 revenue was $2,128M, 34% above the first half of 2025. What the business really earns. We measure owner earnings as cash from operations, less the cash swing from changes in working capital, less stock compensation, less the capital spending needed to stand still. Datadog looks very profitable on a cash basis ($1,050M of operating cash in 2025), but most of that is offset by two items. First, $751M of stock compensation, which is a real cost paid in shares rather than cash. Second, $180M that came from customers paying ahead and from accruals, which is timing that we strip out. We also treat capitalized sales commissions as an ongoing cost and count capitalized software development ($86M in 2025) as spending. After all this, owner earnings were about $20M in 2025 ($0.06 per share), $143M in 2024 ($0.40 per share) and $23M in 2023 ($0.07 per share); 2022 was a loss of about $35M. Our starting level is the median of 2023 to 2025, $0.067 per share, since earlier years describe a much smaller company. Owner earnings fell about 86% in 2025 while revenue rose 28%, because stock compensation grew $180M and capital spending and the working-capital benefit both rose. One item we could not adjust: operating cash is reduced by $45M of non-cash accretion on the company's securities, whose cash arrives as maturities, so cash earnings are somewhat understated on this method. Base case, $2.96 per share. Owner earnings grow 20% a year for three years, 12% for three, then 6% for four, and hold flat afterwards. Credit for the first years rests on the $3,461M of contracted backlog, up 52% in a year, and the 34% first-half 2026 revenue growth, which is the dated reason we assume growth above the fall seen in 2025. We do not credit profit-margin expansion, new products or wider market share, since none of these is secured. Growth then tapers as the demonstrated pace fades. After year ten we assume the existing subscriber base keeps paying, with no further growth. Bear case, $0.35 per share. Stock compensation keeps growing as fast as revenue (it grew 32% in 2025 against 28% revenue growth), so owner earnings stay near $0.04 per share for ten years and then fade to zero over a decade as customers optimize usage. The $1.0B of convertible notes due 2029 add dilution or repayment pressure in this outcome. Bull case, $8.46 per share. The company's own 2024 result ($0.40 per share) shows what happens when stock costs and working capital stay proportionate to revenue; we start at $0.15 per share and grow 25% a year for three years, 15% for three, 8% for four, then hold flat. What would make this wrong: stock compensation continuing to absorb nearly all cash earnings, which would keep the value at the bear case, or usage growth from existing customers slowing from about 120% net retention. Working-capital and accretion adjustments could not be fully reconciled to alternative definitions of earnings, so per-share values are sensitive to how stock compensation is treated.