Datadog Q2 Earnings Call Highlights

Key Points

• Datadog’s Q2 revenue rose 36% to $1.12 billion, exceeding the high end of guidance, while non-AI customer growth accelerated to the high-20% range. Billings increased 38% and free cash flow reached $279 million.
• Customer expansion remained strong, with approximately 33,400 customers and 4,720 customers generating at least $100,000 in ARR. AI adoption and product usage broadened, including more than 750 AI customers and 58% of customers using at least four products.
• Datadog renewed a major AI customer in a nine-figure deal but expects that customer’s usage to decline beginning in Q3; the reduction is included in its outlook. The company projects roughly 30% fiscal 2026 revenue growth to $4.45 billion–$4.47 billion.

Datadog NASDAQ: DDOG reported second-quarter revenue of $1.12 billion, up 36% from a year earlier and above the high end of its guidance range, as growth accelerated across both AI-focused and non-AI customers.

Co-founder and Chief Executive Officer Olivier Pomel said revenue growth among non-AI customers reached the high 20% range year over year, compared with the mid-20% range in the prior quarter and 18% in the year-ago period. He said the company sees broader adoption of AI driving cloud usage, modernization efforts and demand for its observability, security and analytics platform.

“Our broad base of customers, from the most nimble startups to the largest and most established enterprises, are all adopting AI,” Pomel said.

Customer Growth and Financial Results

Datadog ended the quarter with about 33,400 customers, compared with approximately 31,400 a year earlier. Customers with annual recurring revenue of at least $100,000 totaled about 4,720, up from roughly 3,850 a year ago, and accounted for approximately 91% of ARR.

The company reported $1.18 billion in billings, up 38% year over year, while remaining performance obligations rose 43% to $3.47 billion. Current RPO increased about 40%.

Non-GAAP gross profit was $892 million, representing a 79.6% gross margin, compared with 80.2% in the preceding quarter and 80.9% a year earlier. Non-GAAP operating income was $257 million, or a 23% margin, versus a 22% margin in the prior quarter and 20% a year ago.

Cash flow from operations was $316 million, and free cash flow was $279 million, producing a 25% free-cash-flow margin. Datadog ended the quarter with $5 billion in cash equivalents and marketable securities.

Chief Financial Officer David Obstler said the company’s 11% sequential revenue growth was its highest since the second quarter of 2022, while its $115 million sequential revenue increase was a record.

Datadog’s trailing-12-month net revenue retention rate remained in the low 120% range, similar to the prior quarter. Gross revenue retention was in the mid-to-high 90% range, according to Obstler.

AI Customers, Product Adoption and New Deals

Datadog said more than 750 AI customers used its platform as of the second quarter, including all 10 of the company’s identified top AI leaders. Within the AI customer group, 31 customers spent more than $1 million annually, including eight spending more than $10 million annually.

The company also said new customers accounted for about 30% of year-over-year revenue growth in the quarter, up from 25% in the first quarter. Enterprise new-logo annualized bookings more than doubled from a year earlier, Obstler said.

Product adoption continued to expand. Datadog said 58% of customers used four or more products, up from 52% a year earlier. Customers using six or more products rose to 37% from 29%, while those using 10 or more products increased to 13% from 7%.

Real User Monitoring exceeded $200 million in ARR and grew more than 50% year over year, Pomel said.

During its DASH user conference in June, Datadog announced more than 100 products and features. The additions included expanded Bits AI capabilities for incident detection, investigation, remediation, code fixes, testing and release validation. The company also introduced products aimed at AI workload monitoring and security, including Agent Console, Data Observability, AI Guard and additional GPU and agent observability offerings.

Datadog also introduced Infinite Cardinality Metrics, which it said will allow users to analyze increasingly complex metrics data without additional costs tied to cardinality. Pomel said the offering addresses a longstanding concern from customers over unpredictable costs associated with sending more granular data.

The company cited several large customer wins, including a multiyear deal worth more than $30 million in total contract value with an online media company. That customer selected Datadog to standardize its platform across its business, replacing four commercial and internal tools. The deal included Datadog’s largest Bring Your Own Cloud win to date, involving a petabyte-scale logging deployment.

Largest Customer Reduction Included in Outlook

Datadog said it signed a nine-figure renewal with a longtime leading AI customer that uses 17 Datadog products. However, the company expects a reduction in that customer’s usage beginning in the third quarter and incorporated the decline into its outlook.

Pomel said Datadog renewed the customer but declined to discuss further contractual details. He emphasized that the broader business continued to accelerate and said the company had “fully de-risked” its guidance for the rest of the year with respect to the account.

“If you backed out our largest customer from our growth, you get pretty much the same growth rate as the rest of the business,” Pomel said.

Outlook

For the third quarter, Datadog expects revenue of $1.135 billion to $1.145 billion, representing year-over-year growth of 28% to 29%. It forecast non-GAAP operating income of $260 million to $270 million, or an operating margin of 23% to 24%, and non-GAAP diluted earnings per share of $0.63 to $0.65.

For fiscal 2026, the company forecast revenue of $4.45 billion to $4.47 billion, representing approximately 30% growth. Datadog expects non-GAAP operating income of $1.01 billion to $1.03 billion, a 23% operating margin, and non-GAAP diluted earnings per share of $2.50 to $2.54.

Obstler said the company’s guidance methodology had not changed and continues to incorporate recent business trends along with conservatism. Datadog expects capital expenditures and capitalized software costs to equal 4% to 5% of revenue in fiscal 2026.

About Datadog (NASDAQ:DDOG)

Datadog NASDAQ: DDOG is a cloud-based monitoring and observability platform that helps organizations monitor, troubleshoot and secure their applications and infrastructure at scale. Its software-as-a-service offering collects and analyzes metrics, traces and logs from servers, containers, cloud services and applications to provide real-time visibility into system performance and health. Datadog's platform is widely used by engineering, operations and security teams to reduce downtime, accelerate incident response and improve application reliability.

The company's product suite includes infrastructure monitoring, application performance monitoring (APM), log management, real user monitoring (RUM), synthetic monitoring and network performance monitoring, along with security-focused products such as security monitoring and cloud SIEM.

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