Wells Fargo downgraded Datadog (DDOG) stock after the cybersecurity company issued a weak outlook for the first quarter and full year 2025. The lackluster guidance overshadowed the company’s better-than-expected fourth-quarter results, sending the stock down by 8.2% on Thursday. Intense competition and the investments required to provide innovative solutions amid the ongoing AI (artificial intelligence) boom weighed on Datadog’s performance.
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Datadog’s adjusted EPS (earnings per share) grew 11.4% year-over-year to $0.49 in Q4 2024, surpassing analysts’ consensus estimate of $0.43. Moreover, revenue increased 25% year-over-year to $737.7 million, exceeding the $715.2 million consensus forecast.
However, both the first quarter and full-year 2025 guidance lagged the Street’s estimates. Datadog expects 2025 revenue between $3.175 billion and $3.195 billion and adjusted EPS in the range of $1.65 to $1.70. Analysts were expecting adjusted EPS of $2.02 on revenue of $3.24 billion.
Here’s Why Wells Fargo Downgraded Datadog Stock
Wells Fargo analyst Andrew Nowinski downgraded Datadog stock to Hold from Buy and lowered the price target to $140 from $152. The downgrade reflects analyst’s concerns over the slowdown in growth and higher spending in 2025. The analyst noted that Datadog’s 2025 revenue growth guidance of 18% to 19% lagged his 20% estimate.
Moreover, Nowinski highlighted the company’s plans to ramp its operating expenses in the high-20% range to capture opportunities in the large enterprise business. He pointed out that the expected growth rate in operating expenses is way higher than the revenue growth estimate.
Nowinski added that the combination of slowing growth, uncertainty related to the ramp of Al contribution, and declining operating and free cash flow margins will make it difficult to justify Datadog stock’s premium mid-teens enterprise value (EV)/sales multiple.
Nowinski ranks 192 out of over 9,300 analysts tracked by TipRanks. He has a success rate of 57% and has achieved an average return per rating of 18.1% over a one-year period.
Is DDOG Stock a Good Buy?
Wall Street has a Strong Buy consensus rating on Datadog stock based on 24 Buys and six Holds. Shares have risen by only 3% over the past year. The average DDOG stock price target of $164.16 implies 20.8% upside potential.
However, analysts’ ratings and price targets could be revised further based on the company’s dismal outlook.
