Figma and Datadog Plunge on Earnings Beats: One Selloff Creates Opportunity, The Other Is a Trap

Both companies beat revenue, beat EPS, and raised guidance. Both dropped roughly 17%. The reason the market punished them is the same — fear of growth deceleration. The reason one of these selloffs matters for investors and the other doesn't has everything to do with where the valuation reset ends versus where the business deterioration begins.

Figma (FIG): Buy Into the SBC-Fueled Panic

Figma reported Q2 2026 revenue of $370.1 million, up 48% year over year, beating the consensus estimate of $351.6 million. Non-GAAP EPS of $0.08 easily topped the $0.041 estimate. Management raised full-year revenue guidance to $1.463 billion-$1.467 billion, implying roughly 39% growth at the midpoint.

So what triggered the 16.75% selloff? Three things hit simultaneously.

Stock-based compensation increased significantly, but as a non-cash charge it does not affect operating cash flow and the underlying operating economics remain solid.

That gap between the headline growth rate and the forward trajectory is what scared investors most.

Here's the part the selloff overlooked. Figma's stock has declined 74% from its 52-week high of $91 to today's $23.44. Year-to-date it's down 37%. The enterprise value of $10.85 billion implies a multiple of roughly 8.5 times trailing sales. For a company with 48% revenue growth, $445.8 million in cash, and a 48% growth rate, that multiple reflects a worst-case assumption about growth deceleration persisting without margin recovery.

The valuation reset has outpaced the business deterioration. Figma at 8.5 times sales is trading at a multiple you'd expect to see on a mature, low-growth software company.

Figma: Buy. The multiple has compressed far beyond what the operating trends justify.

Datadog (DDOG): Hold — Rich Valuation Absorbs Nothing

Datadog's quarter was, by any mechanical measure, excellent. Revenue of $1.12 billion grew 35.6% year-over-year and topped the $1.08 billion estimate. Non-GAAP EPS of $0.65 beat the $0.58 consensus. The company raised full-year revenue and EPS guidance.

The stock still dropped 15.6%. This is textbook sell-the-news.

The stock has gained 84% over the trailing 12 months and is up 76% year-to-date. It rallied from $98 to near $283 before this quarter. At that point, the bar for another massive pop is extraordinarily high — not just a beat, but a beat with accelerating momentum, no growth concerns, and no sign of margin pressure. Even a great quarter becomes a "good enough" quarter when the price has already run this far.

The underlying concern is the same deceleration story haunting the sector.

The math is brutal. Datadog's market cap of $85 billion and enterprise value of $81.2 billion imply 22.1 times trailing sales. For context, Airbnb — a profitable, cash-generative company with a mature market position — trades at roughly 7.2 times sales. Meta, generating enormous free cash flow on a massive revenue base, trades at 6.6 times sales. Datadog is pricing in a world where 35%+ growth with expanding margins continues for years. That's not unreasonable if the trajectory holds, but it leaves zero margin for error.

The operating picture remains solid. Free cash flow margins of 26.1% over the trailing twelve months are excellent for a SaaS company. Gross margins of 79.9% are stable, and the company has $2.96 billion in debt offset by $426.4 million in cash — a net debt position.

But here's the difference from Figma: Datadog's valuation hasn't reset. At 22 times sales and 627 times trailing earnings, the stock is still asking you to believe in perfection. A 16% drop on a 84% rally doesn't constitute a valuation reset. It constitutes a pause.

Datadog: Hold. The business is strong, but the multiple is still rich enough that growth deceleration — even modest — is a risk, not a buying opportunity.

What to Watch

Figma upside case: If growth continues to decelerate only modestly without further margin deterioration, and AI credit monetization continues expanding (the company's first full quarter of AI monetization was Q2, so this is early), the stock at 8.5 times sales has enormous room for multiple expansion. The next earnings report in November will be the critical test.

Figma downside risk: If gross margins continue to decline and stock-based compensation stays elevated, the path to sustained profitability gets longer. The company is burning through cash at a meaningful pace on compensation, even though cash of $445.8 million provides runway.

Datadog upside case: If Q3 growth stays above 30% and free cash flow margins hold near 25%, the current price of $239 is a reasonable entry point for long-term holders. The problem isn't the business — it's the patience required.

Datadog downside risk: Any quarter where growth falls below 30% or margins compress could trigger another multiple contraction. At 22 times sales, the stock has priced in execution that is still ahead of the evidence. A deceleration to high-20s growth, combined with rising AI infrastructure costs, would put real pressure on this valuation.

Bottom Line

The market punished two growth software companies for the same reason: forward growth looks slower than it did yesterday. But a selloff is only a buying opportunity when the valuation reset exceeds the business deterioration. Figma at 8.5 times trailing sales, with 48% growth, has been punished well beyond its operating merits. Datadog, still at 22 times sales after an 84% annual run, has not.

Buy the one that's been mispriced. Wait on the one that hasn't.