Datadog, Inc.DDOGNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $64.08 per share(market-calibrated)

-42.7%

Upside to Fair Value

Current

$111.77

Pure Model

$60.67

Fair Value

$64.08

Bull Case

$89.91

Bear Case

$38.85

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

8.19%

Calibrated Growth

4.86%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $60.67.

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 $40.11/share (16.0x terminal FCF) while exit multiple gives $81.22/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 pricing in higher long-term growth

To justify $111.77, the market implies 8.19% perpetual growth — 444bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured 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)96.20%

Debt Weight (D/V)3.80%

WACC Calculation

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

WACC = (96.20% × 10.62%) + (3.80% × 0.69%)

= 10.24%

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	0.377
Present Value	$204M	$245M	$307M	$536M	$677M

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%

WACC10.24%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$28.7B

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$15.1B

(-) Net Debt$1.1B

Equity Value$13.9B

Shares Outstanding347M

Price per Share$40.11

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$81.22

Pure Model Fair Value

$60.67

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%
8.24%	$75.85	$78.16	$80.98	$84.51	$89.06
9.24%	$66.20	$67.70	$69.47	$71.60	$74.20
10.24%	$58.46	$59.48	$60.67	$62.05	$63.68
11.24%	$52.04	$52.77	$53.59	$54.54	$55.63
12.24%	$46.59	$47.13	$47.73	$48.40	$49.16

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

$38.85

-65.2% vs current

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

Base Case

$60.67

-45.7% vs current

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

Bull Case

$89.91

-19.6% 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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