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Datadog, Inc. (DDOG)·Q2 2025 Earnings Summary

Executive Summary

  • Delivered strong Q2: revenue $827M (+28% YoY) and non-GAAP EPS $0.46; revenue exceeded the high end of guidance and both revenue/EPS were above Wall Street consensus* for the quarter .
  • Mix and durability: AI-native cohort represented ~11% of Q2 revenue and contributed ~10 points of YoY growth; trailing 12‑month NRR was ~120% and gross revenue retention remained mid–high 90s, underscoring mission-critical stickiness .
  • Guidance raised across the board: FY25 revenue to $3.312–$3.322B (from $3.215–$3.235B), non‑GAAP operating income to $684–$694M (from $625–$645M), and non‑GAAP EPS to $1.80–$1.83 (from $1.67–$1.71) .
  • Margin/cash: Non‑GAAP operating margin 20% (impacted by ~$13M DASH cost and ~$6M negative FX); free cash flow $165M (20% margin). Management expects further gross margin improvement in 2H on cloud efficiency programs .
  • Catalysts: >125 innovations unveiled at DASH (AI agents, data/AI observability); S&P 500 inclusion effective July 9, 2025; expanding FedRAMP path—each expands TAM and institutional interest .

What Went Well and What Went Wrong

  • What Went Well

    • Beat and raise: Revenue grew 28% YoY to $827M and was above the high end of guidance; FY25 guidance was raised across revenue, operating income, and EPS .
    • AI momentum: AI-native customers reached ~11% of revenue (up from 8% in Q1 and ~4% YoY), contributing ~10 points of Q2 YoY growth; management reiterated long-term AI tailwind .
    • Product velocity and platform adoption: >125 innovations at DASH across AI agents, AI/data observability, security; CEO highlighted multi-product traction (52% using ≥4 products, 29% using ≥6, 14% using ≥8) .

  • What Went Wrong

    • GAAP profitability and margin mix: GAAP operating loss $(36)M (−4% margin); non‑GAAP operating margin slipped to 20% (vs 22% in Q1, 24% in Q4) given DASH costs and FX headwind .
    • Cohort concentration risk: Management cautioned on potential near‑term volatility from AI-native revenue concentration and contract renewals despite strong growth .
    • Free cash flow margin normalized: FCF $165M (20% margin) vs 32% in Q1 and 33% in Q4’24; management still targets capex+capitalized software at 4–5% of revenue for FY25 .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($M)$737.7 $761.6 $826.8
YoY Growth (%)25% 25% 28%
QoQ Growth (%)n/a3% 9%
GAAP Diluted EPS ($)$0.13 $0.07 $0.01
Non‑GAAP Diluted EPS ($)$0.49 $0.46 $0.46
GAAP Operating Margin (%)1% (2)% (4)%
Non‑GAAP Operating Margin (%)24% 22% 20%
Non‑GAAP Gross Margin (%)82% 80% 81%
Operating Cash Flow ($M)$265 $272 $200
Free Cash Flow ($M)$241 $244 $165
Free Cash Flow Margin (%)33% 32% 20%

Estimates vs Actuals (Wall Street consensus from S&P Global)

MetricQ1 2025 Consensus*Q1 2025 ActualQ2 2025 Consensus*Q2 2025 Actual
Revenue ($M)741.4*761.6 790.9*826.8
Non‑GAAP EPS ($)0.424*0.46 0.408*0.46

*Values retrieved from S&P Global.

KPIs and Operating Metrics

KPIQ4 2024Q1 2025Q2 2025
Customers with ARR ≥$100k (approx)~3,610 ~3,770 ~3,850
TTM Net Revenue Retention (%)n/aHigh 110s ~120
Gross Revenue Retention (%)n/aMid–high 90s Mid–high 90s
Billings ($M)n/a$748 (+21% YoY) $852 (+20% YoY)
RPO ($B)n/a$2.31 (+33% YoY) $2.43 (+35% YoY)
AI‑native % of revenuen/a~8% ~11%
Customers using ≥2/4/6/8 products (%)n/a83/51/28/13 83/52/29/14
Security ARRn/an/a>$100M; mid‑40s% YoY growth

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$3.215–$3.235B $3.312–$3.322B Raised
Non‑GAAP Operating IncomeFY 2025$625–$645M $684–$694M Raised
Non‑GAAP EPSFY 2025$1.67–$1.71 (≈362M diluted shares) $1.80–$1.83 (≈364M diluted shares) Raised
RevenueQ3 2025n/a$847–$851M New
Non‑GAAP Operating IncomeQ3 2025n/a$176–$180M New
Non‑GAAP EPSQ3 2025n/a$0.44–$0.46 (≈364M diluted shares) New
Cash TaxesFY 20251% of revenue ($30–$35M) ~$10–$20M Lowered
Net Interest & Other IncomeFY 2025~+$140M ~+$150M Raised
Capex + Capitalized SoftwareFY 20254–5% of revenue 4–5% of revenue Maintained
Non‑GAAP Tax RateFY 202521% 21% Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
AI/Technology initiativesContinued investment incl. Cloud SIEM, DB Monitoring; strong product cadence .LLM Observability adoption doubled; >4,000 customers use AI integrations; Flex Logs ~$50M ARR; DB Monitoring near $50M ARR .>125 launches at DASH incl. AI agents (Bits AI SRE/Dev/Security), AI/agent monitoring, GPU monitoring, data observability (Metaplane) .Accelerating innovation
Gross margin/Cloud efficiencyGM ~80–82%; framework to fluctuate within high‑70s to low‑80s .Hosting costs rose faster than expected; launched cloud cost efficiency projects .Non‑GAAP GM ~81%; teams delivered savings; expect further 2H improvement .Improving in 2H
Go‑to‑market capacityInvesting; FY25 plan set .+25% total reps YoY (+30% enterprise), international mid‑30s; strong new logo dollar bookings (+70% YoY) .Productivity improving; pipeline robust; continued focus on enterprise and international expansion .Capacity ramping well
Security portfolioModern Cloud SIEM approach announced .>7,500 security customers; >50% of F500 on security .Security ARR >$100M; mid‑40s% growth; focus on wall‑to‑wall standardization in large enterprises .Strengthening
Flex Logs/logging economicsn/aFastest to ~$50M ARR; expands use cases without cannibalization .Flex tiers (Flex Frozen), Archive Search; in most large enterprise deals; cost predictability story resonates .Broadening deployments
Macro/consumptionn/aEnterprise usage variability but bookings strong; clouds steady .Demand solid; SMB/mid‑market improved; enterprise stable; AI‑native growing but volatile .Stable to improving
Regulatory/verticaln/aNew Australia data center planned .Progressing to FedRAMP High; S&P 500 inclusion (July 9) .Expanding reach

Management Commentary

  • “Datadog had a strong second quarter, with 28% year-over-year revenue growth, $200 million in operating cash flow, and $165 million in free cash flow” — Olivier Pomel, CEO .
  • “AI‑native customers represented about 11% of Q2 revenues… contributed about 10 points of year‑over‑year revenue growth” — David Obstler, CFO .
  • “We saw an increasing impact of our engineers’ cost savings efforts… and believe that we have further opportunity for gross margin improvement in the second half of the year” — CFO .
  • “We showcased our rapid pace of innovation, announcing over 125 new innovations to help our customers observe, secure, and act on their complex cloud environments and AI tech stacks” — CEO .
  • “Our security suite of products now generates over $100,000,000 in ARR, and is growing mid‑forties percent year over year” — CEO .

Q&A Highlights

  • AI-native cohort concentration and volatility: Management reiterated strong growth but flagged potential volatility with renewals and usage optimization; revenue ex-largest AI-native customer showed stable growth vs Q1 .
  • Margin outlook: Q2 non‑GAAP operating margin impacted by DASH ($13M) and FX ($6M); ongoing cloud efficiency programs expected to lift gross margins in 2H .
  • Security go‑to‑market: Goal is wall‑to‑wall standardization in large enterprises; willing to pursue selective M&A to broaden capabilities .
  • Flex Logs adoption: Involved in most large enterprise deals; improves cost predictability and supports migrations from legacy log tools .
  • Sales capacity/productivity: Ramp on track across geographies; increased enterprise and international focus with healthy pipeline .

Estimates Context

  • Q2 2025 results vs S&P Global consensus: Revenue $826.8M vs $790.9M*; non‑GAAP EPS $0.46 vs $0.408* — both ahead of Street* .
  • Q1 2025 similarly ahead: Revenue $761.6M vs $741.4M*; non‑GAAP EPS $0.46 vs $0.424* .
  • Q3 2025 guidance (rev $847–$851M; EPS $0.44–$0.46) brackets current consensus (rev ~$852.3M*, EPS ~$0.457*) .
  • FY 2025 guidance ($3.312–$3.322B; $1.80–$1.83 EPS) sits below current consensus ($3.389B*; $2.02*), suggesting potential for estimate recalibration to management’s outlook* .
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat-and-raise quarter: Broad-based outperformance vs consensus and an across-the-board FY25 raise should support positive sentiment; monitor 2H gross margin execution .
  • AI monetization is scaling: AI‑native cohort now ~11% of revenue with rising contribution; durable GRR and ~120% NRR reinforce expansion potential across cohorts .
  • Watch cohort concentration/renewal cyclicality: Management noted possible near‑term volatility around large AI-native renewals; revenue ex-largest AI-native customer remained stable vs Q1 .
  • Security as a second act: >$100M ARR and mid‑40s growth with a push toward enterprise standardization; M&A optionality adds capability depth .
  • Flex Logs/logging economics are a wedge: Flex tiers and Archive Search are driving large enterprise migrations from legacy tools with improved cost predictability .
  • Institutional sponsorship tailwind: S&P 500 inclusion (effective July 9, 2025) and FedRAMP High progress expand addressable customer pools .
  • Capital allocation guideposts: FY25 OI&E +$150M, cash taxes reduced to $10–$20M, capex+capitalized software 4–5% of revenue; non‑GAAP tax rate held at 21% .

Appendix: Additional Primary Source Details

  • 8‑K Q2 2025 (press release with detailed financials, non‑GAAP reconciliations) .
  • Earnings call transcript (Q2 2025) with cohort mix, margin outlook, demand commentary .
  • Prior quarters for trend analysis: Q1 2025 8‑K and call ; Q4 2024 8‑K .
  • Other Q2‑period press releases: S&P 500 inclusion effective July 9, 2025 ; investor conferences .