Datadog, Inc. (DDOG) Earnings & Analysis

Latest quarter

Datadog reported Q2 FY2026 revenue of $1.1 billion, up 35.6% from Q2 FY2025. The company reported adjusted EPS of $0.65 against the consensus of $0.58, or 12.1% above the consensus, while revenue was 3.85% above the consensus.

The filing said approximately 70% of the quarterly revenue increase came from existing customers and 30% from new customers. Datadog’s gross margin was 78.6%, down −1.3 percentage points from a year earlier, which the filing attributed primarily to increased third-party cloud infrastructure provider costs. The company’s operating margin was 0.49%, compared with −4.29% a year earlier, and free cash flow was $278.7 million, up 68.6% year over year. Datadog said Q2 revenue came in above its own guidance.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Olivier Pomel said revenue growth accelerated across Datadog’s customer base in Q2, with growth among non-AI customers reaching the high 20% year over year. He said AI-native customers continued to grow in number and scale, while customers across the broader base were adopting AI and increasing their use of cloud technologies and Datadog’s platform.

David Obstler said Datadog ended Q2 with about 33,400 customers, including about 4,720 customers with annual recurring revenue of $100,000 or more. He said the company saw usage growth from existing customers, a stronger contribution from new customers, and new-logo annualized bookings in enterprise that more than doubled from a year earlier. Obstler also said the trailing 12-month net revenue retention rate was in the low 120s and gross revenue retention was in the mid to high 90s.

Pomel said 58% of customers used four or more products, 37% used six or more, and 13% used 10 or more. He said the company announced more than 100 products and features at its Dash conference, including additions to Bits.ai and products for observing, securing and optimizing AI systems.

Obstler said Q2 non-GAAP gross margin was 79.6% and that gross margin can vary with investments in customer innovation and efficiency efforts. He said Q2 operating expenses grew 26% year over year and cited about $15 million of Dash conference costs. Pomel said Datadog planned to accelerate AI research through the acquisition of Adaptive ML.

During the Q&A, Pomel said Datadog had renewed its largest customer but had seen that customer reduce usage beginning in Q3. He said the company incorporated that reduction into guidance and would not provide more customer-specific detail. Obstler said large customers generally have contractual commitments alongside usage that can vary above those commitments.

Guidance

Datadog now expects FY2026 revenue of $4.45 billion to $4.47 billion and non-GAAP operating income of $1.01 billion to $1.03 billion, compared with its previous non-GAAP operating-income guidance of $940 million to $980 million. The company now expects FY2026 non-GAAP diluted EPS of $2.50 to $2.54. For Q3 FY2026, Datadog expects revenue of $1.135 billion to $1.145 billion, non-GAAP operating income of $260 million to $270 million, and non-GAAP EPS of $0.63 to $0.65.