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Datadog, Inc. (DDOG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered solid top-line and cash generation: revenue $0.762B (+25% y/y, +3% q/q), non-GAAP EPS $0.46, operating cash flow $0.272B and free cash flow $0.244B; revenue and EPS beat S&P Global consensus, driven by strong new logo and large-deal bookings and ongoing AI cohort contribution . Revenue Consensus Mean: $0.741B*; EPS Consensus Mean: $0.424* (Beat) [Q1 2025 estimates]*.
  • Guidance raised for FY 2025 revenue to $3.215–$3.235B, but non-GAAP operating income lowered to $625–$645M on higher cloud hosting costs and continued investment; Q2 2025 introduced with revenue $0.787–$0.791B and non-GAAP EPS $0.40–$0.42 .
  • Key positives: rapid product adoption (Flex Logs >$50M ARR; Database Monitoring ~$50M ARR), 11 deals with TCV ≥$10M, $100k+ ARR customers up ~13% y/y to ~3,770; gross margin modestly pressured by customer growth spikes and new product innovation, with optimization initiatives underway .
  • Stock catalysts: sustained consensus beats, raised FY revenue guidance, AI-native cohort rising to ~8.5% of ARR, and monetization potential from security, data observability, and OnCall; watch near-term margin trajectory and AI cohort renewal-driven volatility .

What Went Well and What Went Wrong

What Went Well

  • Large-deal momentum and bookings strength: 11 deals with TCV ≥$10M; dollar bookings for new logos up >70% y/y; pipeline quality for Q2 similar or better than last year . “Dollar bookings for new logos were up over 70% year-over-year… we signed a total of 11 deals with a TCV of $10 million or more” .
  • Product adoption milestones: Flex Logs exceeded $50M ARR in six quarters, fastest ramp to that level; Database Monitoring approaching $50M ARR, growing ~60% y/y with >5,000 customers . “Flex Logs… now exceeds $50 million in ARR… Database Monitoring… growing 60% year-over-year” .
  • AI-driven demand and platform usage: AI-native customers ~8.5% of Q1 ARR, contributing ~6 points to y/y revenue growth; LLM Observability customers have more than doubled in 6 months . “AI‑native customers… represented about 8.5% of Q1 ARR… contributed about 6 points of year-over-year revenue growth” .

What Went Wrong

  • Gross margin pressure: non-GAAP GM declined to ~80% (from ~82% in Q4), as cloud hosting costs rose faster than expected to support large usage spikes; management is shifting resources to optimization projects . “Our cloud hosting costs rose more quickly than we expected in Q1… expect to realize savings throughout the rest of the year” .
  • FY 2025 non-GAAP operating income guidance lowered: to $625–$645M (from $655–$675M), reflecting lower gross profit offset by higher revenues; indicates near-term margin investment .
  • AI cohort renewal volatility risk: management cautioned that renewals with better terms and usage optimization can create short-term revenue volatility despite strong long-term volume growth .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$690.0 $737.7 $761.6
GAAP Diluted EPS ($)$0.14 $0.13 $0.07
Non-GAAP Diluted EPS ($)$0.46 $0.49 $0.46
GAAP Gross Margin (%)80% 80% 79%
Non-GAAP Gross Margin (%)81% 82% 80%
Non-GAAP Operating Margin (%)25% 24% 22%
KPIQ3 2024Q4 2024Q1 2025
$100k+ ARR Customers (approx. count)~3,490 ~3,610 ~3,770
Billings ($USD Millions)$689 $908 $748
RPO ($USD Billions)$1.82 $2.27 $2.31
Operating Cash Flow ($USD Millions)$229 $265 $272
Free Cash Flow ($USD Millions)$204 $241 $244
AI-Native Cohort (% of ARR)>6% ~6% ~8.5%
Estimates vs ActualsQ3 2024Q4 2024Q1 2025
Revenue Consensus Mean ($USD Millions)664.5*714.3*741.4*
Revenue Actual ($USD Millions)690.0 737.7 761.6
Rev Beat/Miss vs ConsensusBeat*Beat*Beat*
EPS Consensus Mean ($)0.395*0.433*0.424*
Non-GAAP EPS Actual ($)0.46 0.49 0.46
EPS Beat/Miss vs ConsensusBeat*Beat*Beat*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$3.175B–$3.195B $3.215B–$3.235B Raised
Non-GAAP Operating IncomeFY 2025$655M–$675M $625M–$645M Lowered
Non-GAAP EPSFY 2025$1.65–$1.70 $1.67–$1.71 Raised slightly
RevenueQ2 2025—$787M–$791M Initiated
Non-GAAP Operating IncomeQ2 2025—$148M–$152M Initiated
Non-GAAP EPSQ2 2025—$0.40–$0.42 Initiated

Q1 2025 achievement vs prior guidance:

  • Revenue: guided $737M–$741M vs actual $761.6M (Beat) .
  • Non-GAAP EPS: guided $0.41–$0.43 vs actual $0.46 (Beat) .

Earnings Call Themes & Trends

TopicQ3 2024 (Previous)Q4 2024 (Previous)Q1 2025 (Current)Trend
AI/technology initiativesLLM Observability traction; ~3,000 customers using AI integrations Strong AI-native growth; caution on optimization AI-native ~8.5% of ARR; LLM Observability customers doubled in 6 months; Bits AI, App Builder automation Increasing contribution; building features
Gross margin & cloud costsNon-GAAP GM ~81.1%; stable Non-GAAP GM ~82%; investment mode Non-GAAP GM ~80%; cloud hosting costs spiked; optimization to realize savings Pressure near term; optimization underway
Sales capacity & bookingsInvesting in S&M; capacity scaling Record bookings (> $1B); S&M headcount growth Dollar new logos +70% y/y; 11 $10M+ TCV deals; pipeline strong Strengthening
Product performance (Flex Logs, DB Monitoring)—Flex Logs migrations highlighted Flex Logs >$50M ARR; DB Monitoring ~$50M ARR, 60% y/y growth, >5,000 customers Accelerating
Security products/DevSecOps—>7,000 customers using security products ~7,500 security customers; > half Fortune 500 using security; expanded threat management & SDS Growing adoption
Regional/infra trendsNew India logo; OCI monitoring GA International expansion; convertible notes New Australia data center planned Expanding footprint

Management Commentary

  • CEO on AI-driven software shift: “This moves a lot of the value from writing the code to observing it and understanding it in production environments… making sure that… it does what it’s supposed to do for the business” .
  • CFO on margin dynamics: “Our cloud hosting costs rose more quickly than we expected in Q1… we are also focused on executing projects to improve our cloud cost efficiency and expect to realize savings throughout the rest of the year” .
  • CEO on Flex Logs and displacement: “We see tremendous opportunity… Flex Logs adopters ultimately spend more… and we see a ton of opportunity to displace existing players in log management” .
  • CFO on FY guidance change: “Non‑GAAP operating income… $625M–$645M… mainly due to lower gross profit as a result of the previously discussed lower gross profit margin, offset by higher revenues” .

Q&A Highlights

  • AI-native cohort volatility and renewals: Healthy renewals with better terms and potential short-term volatility; cohort now includes >10 customers spending $1M+ and a largest single customer .
  • Bookings and pipeline: Strong pipeline; bookings driven by product strength and expanded quota capacity; sales cycles not impacted by macro/tariffs .
  • Gross margin optimization: Shift of engineering resources to efficiency; expect margins to remain within historical range after optimizations .
  • BYO cloud/on-prem stance: Will support customer-managed data paths and on-prem workloads; testing new product to let customers manage part of their data directly on their cloud .
  • Acquisitions impact: Eppo and Metaplane net revenue impact small in 2H; ~$10M net additional costs embedded; FY EPS guided with ~21% non-GAAP tax rate .

Estimates Context

  • Q1 2025 vs S&P Global consensus: Revenue $761.6M vs $741.4M* (Beat); non-GAAP EPS $0.46 vs $0.424* (Beat). Company raised FY revenue guidance but lowered operating income, implying estimate revisions could lift revenue but trim margin expectations .
  • Prior quarters: Q4 2024 actuals beat revenue and EPS consensus; Q3 2024 also beat both .
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Demand health: Consistent usage trends and strong bookings/new logo momentum (11 $10M+ deals) support near-term revenue visibility; expect continued consensus beats if AI cohort remains stable .
  • Margin watch: Near-term gross margin pressure from hosting costs and rapid product shipping; monitor execution of cloud cost optimization and GM trajectory through Q2/Q3 .
  • Guidance mix: FY 2025 revenue raised but operating income lowered; narrative reflects growth investment and hosting costs—position sizing should incorporate a lower near-term margin profile .
  • Product catalysts: Flex Logs and Database Monitoring reaching ~$50M ARR each, plus security suite and OnCall, create multi-pronged growth drivers and cross-sell potential into large enterprise accounts .
  • AI leverage: AI-native cohort is a material driver (~8.5% of ARR; ~6 points of y/y growth); expect volatility around renewals but long-term favorable tailwinds as enterprise AI inference scales .
  • Cash generation: Robust OCF/FCF (Q1 FCF $244M, margin 32%) underpins flexibility to invest and absorb short-term margin pressure without impairing balance sheet strength ($4.4B cash & equivalents) .
  • Tactical trading: Near-term catalysts include Q2 delivery vs guidance, DASH product announcements, and margin optimization updates; watch any disclosures on AI cohort renewals and hosting cost savings cadence .