Datadog, Inc.DDOGNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $74.96 per share(market-calibrated)

-36.6%

Upside to Fair Value

Current

$118.32

Pure Model

$60.51

Fair Value

$74.96

Bull Case

$89.66

Bear Case

$38.75

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor DDOG

✓

CapEx already efficient

CapEx at 1.24% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 11.93% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.2B (20.72% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 20.22% revenue growth in Year 1, fading to 13.92% by Year 5 and 3.75% by Year 10. Revenue reaches $10.6B by Year 10 (vs $3.4B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $39.94/share (15.9x terminal FCF) while exit multiple gives $81.08/share (37.1x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $118.32. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.52% indicates efficient cash generation. FCF reaches $1.8B by Year 10 (16.88% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.36

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.62%

Cost of Debt

Pre-tax Cost of Debt0.81%

Tax Rate15.18%

After-tax Cost of Debt0.69%

Equity Weight (E/V)96.40%

Debt Weight (D/V)3.60%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (96.40% × 10.62%) + (3.60% × 0.69%)

= 10.26%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$4.1B	$5.9B	$7.3B	$9.0B	$10.6B
EBIT	$491M	$701M	$872M	$1.5B	$2.2B
Tax	$75M	$106M	$132M	$227M	$334M
NOPAT	$417M	$594M	$740M	$1.3B	$1.9B
+ Depreciation	$67M	$96M	$119M	$147M	$173M
- Capex	$51M	$73M	$91M	$112M	$132M
- Δ NWC	$208M	$289M	$268M	$242M	$115M
Free Cash Flow	$225M	$329M	$500M	$1.1B	$1.8B
Discount Factor	0.907	0.746	0.614	0.505	0.376
Present Value	$204M	$245M	$307M	$535M	$676M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.8B

Terminal Growth Rate3.75%

WACC10.26%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$28.6B

PV of Terminal Value$10.8B

Exit Multiple Method

Year 10 EBITDA$2.4B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$66.5B

PV of Terminal Value$25.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$4.2B

PV of Terminal Value$10.8B

Enterprise Value$15.0B

(-) Net Debt$1.1B

Equity Value$13.9B

Shares Outstanding347M

Price per Share$39.94

Exit Multiple Method

PV of Projected FCFs$4.2B

PV of Terminal Value$25.1B

Enterprise Value$29.3B

(-) Net Debt$1.1B

Equity Value$28.2B

Shares Outstanding347M

Price per Share$81.08

Pure Model Fair Value

$60.51

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
8.26%	$75.63	$77.92	$80.71	$84.20	$88.69
9.26%	$66.03	$67.52	$69.27	$71.38	$73.95
10.26%	$58.32	$59.33	$60.51	$61.88	$63.50
11.26%	$51.92	$52.64	$53.46	$54.40	$55.49
12.26%	$46.49	$47.03	$47.62	$48.29	$49.05

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$38.75

-67.3% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.70

Base Case

$60.51

-48.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.36

Bull Case

$89.66

-24.2% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.16

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth20.22%

Year 3 Revenue Growth19.58%

Year 5 Revenue Growth13.92%

Year 7 Revenue Growth9.85%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin11.93%

Terminal EBIT Margin25.00%

Tax Rate15.18%

Historical Capex / Rev1.24%

NWC / Revenue30.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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