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    DDOG
    Earnings call· Jun 2025(Q2 FY25)

    Datadog Q2 FY25 earnings call DDOG

    Aug 7, 2025 Source

    Executive summary

    Datadog Q2 FY25 — Strong Revenue Beat Driven by AI Native Cohort and Cloud Efficiency

    Datadog delivered a strong quarter, driven by robust performance from its rapidly growing AI native customer cohort and effective cloud efficiency initiatives. The company continues to expand its platform capabilities, particularly in AI observability and security, and is actively investing in go-to-market strategies to capitalize on long-term cloud migration and AI adoption trends.

    Highlights

    5

    • Revenue of $827 million, up 28% year-over-year, exceeded the high end of guidance.

    • AI native customers contributed 11% of Q2 revenues, up from 8% last quarter, driving 10 points of year-over-year revenue growth.

    • Non-GAAP gross margin improved to 80.9% from 80.3% quarter-over-quarter due to cloud efficiency projects.

    • Free cash flow was $165 million, representing a 20% free cash flow margin.

    • The security suite of products now generates over $100 million in ARR and is growing mid-40s percent year-over-year.

    Concerns

    2

    • Potential volatility in revenue growth from the AI native cohort due to optimization or contract renegotiations, though not currently observed.

    • Enterprise customer usage growth remained roughly stable in Q2, while SMB and mid-market usage growth improved.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $847 million to $851 million
    high materiality
    High
    Non-GAAP operating income
    $176 million to $180 million
    high materiality
    High
    Non-GAAP net income per share
    $0.44 to $0.46
    medium materiality
    High
    Revenue
    $3.312 billion to $3.322 billion
    high materiality
    High
    Non-GAAP operating income
    $684 million to $694 million
    high materiality
    High
    Non-GAAP net income per share
    $1.80 to $1.83
    medium materiality
    High
    Net interest and other income
    approximately $150 million
    low materiality
    High
    Cash taxes
    about $10 million to $20 million
    low materiality
    High
    Non-GAAP tax rate
    21%
    low materiality
    High
    Capital expenditures and capitalized software
    4% to 5% of revenues
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    AI Native Cohort
    Experienced strong usage growth, driving significant revenue contribution and year-over-year growth. This cohort includes hundreds of customers, with a notable number spending over $100K or $1M annually, and includes 8 of the top 10 leading AI companies.
    Revenue contribution last quarter: 8% of revenuesRevenue contribution year ago quarter: 4% of revenuesYoY revenue growth contribution last quarter: 6 pointsYoY revenue growth contribution year ago quarter: 2 pointsCustomers spending over $1M/year: >12Customers spending over $100K/year: >80Top 10 leading AI companies: 8
    		11% of Q2 revenues10 points of YoY revenue growth——
    SMB and Mid-Market
    Usage growth improved in Q2 relative to previous quarters, contributing to overall stable usage trends across segments (excluding AI native cohort).
    		—improved usage growth——
    Enterprise
    Usage growth remained roughly stable in Q2 relative to previous quarters. While bookings and new product attach are strong, usage growth is more moderate, potentially due to bandwidth limitations for cloud migration and AI adoption.
    		—roughly stable usage growth——

    Operational metrics

    16
    Revenue
    $827M28% YoY, 9% QoQ
    Q2 FY25

    Above the high end of guidance range.

    Customers
    31,400up from 28,700 a year ago
    Q2 FY25

    Includes about 150 new customers from EPO and MetaPlan acquisitions.

    Customers with ARR $100,000 or more
    3,850up from 3,390 a year ago
    Q2 FY25

    These customers generated about 89% of our ARR.

    Customers using two or more products
    83%same as last year
    Q2 FY25

    Indicates platform adoption.

    Customers using four or more products
    52%up from 49% a year ago
    Q2 FY25

    Indicates platform adoption.

    Customers using six or more products
    29%up from 25% a year ago
    Q2 FY25

    Indicates platform adoption.

    Customers using eight or more products
    14%up from 11% a year ago
    Q2 FY25

    Indicates platform adoption.

    AI native cohort revenue contribution
    11%up from 8% last quarter and 4% year ago
    Q2 FY25

    Indicates increasing impact of AI native customers.

    AI native cohort YoY revenue growth contribution
    10 pointsversus 6 points last quarter and 2 points year ago
    Q2 FY25

    Contribution to overall year-over-year revenue growth.

    Customers using one or more Datadog AI integrations
    4,500
    Q2 FY25

    Indicates customer interest in next-gen AI observability and analysis.

    Cash, cash equivalents and marketable securities
    $3.9B
    Q2 FY25

    Balance at the end of the quarter.

    Non-GAAP gross profit
    $669M
    Q2 FY25

    Reported for the quarter.

    Non-GAAP gross margin
    80.9%vs 80.3% last quarter and 82.1% year ago
    Q2 FY25

    Increasing impact of engineers' cost savings efforts and cloud efficiency projects.

    OpEx growth
    30%up from 29% last quarter
    Q2 FY25

    Reflects increased investments to pursue long-term growth opportunities and execution on hiring plans.

    Non-GAAP operating income
    $164M
    Q2 FY25

    Reported for the quarter.

    Non-GAAP operating margin
    20%vs 22% last quarter and 24% year ago
    Q2 FY25

    Impacted by $13 million DASH user conference cost and $6 million negative FX impact. Excluding these, operating margin would have been 22%.

    Industry KPIs

    12
    MetricValueDetails
    Capacity CAPEX4% to 5%% of revenues
    Revenue growth$827MUSD
    Arr net new arr>$100MUSD
    Rpo current rpo$2.43BUSD
    Bookings billings$852MUSD
    Customer account count31,400customers
    Large deal new logo metrics3,850customers
    Gross retention renewal ratemid- to high 90s%
    Multi product platform attach83%%
    Operating FCF margin rule of 4020%%
    Ai product adoption monetization11%% of revenues
    Net revenue net dollar retentionabout 120%%

    Orderbook & backlog

    4
    Billings$852MQ2 FY25

    20% YoY

    Remaining Performance Obligations (RPO)$2.43BQ2 FY25

    35% YoY

    Current RPO growthlow 30sQ2 FY25

    YoY

    RPO durationup slightlyQ2 FY25

    YoY

    Product announcements

    19
    ProductTypeDetails
    Bits AI SRE Agentlaunch
    Bits AI Dev Agentlaunch
    Bits AI Security Analystlaunch
    AI voice agent for incident responselaunch
    Handoff notifications and status pageslaunch
    Datadog internal developer portallaunch
    Datadog MCP serverlaunch
    Datadog Cursor extensionlaunch
    APM latency Investigatorlaunch
    Proactive app recommendationslaunch
    Flex Frozen tierlaunch
    Archived searchlaunch
    Advanced data analysis features within notebooksupdate
    Security products for AI attack vectorsupdate
    GPU monitoringlaunch
    AI Agent consolelaunch
    LLM observability experimentslaunch
    Agentic flows visualizationlaunch
    Data observabilityupdate

    Deals & partnerships

    8
    EPOAcquisition of a company

    Acquisition contributed to new customer count.

    MetaPlanAcquisition of a company

    Acquisition contributed to new customer count and accelerated data observability capabilities.

    One of the world's largest banksStrategic cloud observability platform expansion>$60M3-year contract

    Customer is expanding to 21 Datadog products with thousands of users, using Datadog as their strategic cloud observability platform for cloud migration and AI utilization on rich datasets.

    Leading U.S. insurance companyConsolidation of observability tools and expansion of cloud-based products

    Customer will adopt 19 Datadog products, consolidating dozens of tools across multiple business units, experiencing fewer and less severe incidents.

    Leading American media conglomerateExpansion to consolidate observability tools and replace paging solution

    Customer has about 100 observability tools across 300+ business units. Expanding to 21 Datadog products, including all security products, and replacing their paging solution with Datadog On-Call and Incident Management.

    Leading Brazilian e-commerce companyReplacement of previous observability vendor for modern cloud infrastructure

    Customer's previous vendor could not support their move to newer software platforms. Starting with 7 Datadog products, including Flex Logs, gaining full visibility and improving application stability.

    Delivery app of a major American retailerAdoption of RUM and error tracking products, tool consolidation

    Customer found immediate value in RUM and error tracking, identifying an issue on the first day of trial. Adopting 7 products to consolidate half a dozen tools and meet PCI compliance.

    Leading U.S. mortgage companyReturn to Datadog after using open-source tools, replacing paging system

    Customer previously moved to a dozen disconnected open-source tools, leading to fragmented visibility and poor customer experience. Plans to adopt 6 products, including replacing their paging system with Datadog On-Call.

    Risks & headwinds

    4
    Volatility in AI native cohort revenue growthFuture quarters

    Not currently observed, but potential for optimization or contract renegotiations

    Mitigation: Management applies conservative assumptions in guidance; strong product engagement and high retention rates for most customers.

    DASH user conference costsQ2 FY25

    $13 million

    Mitigation: One-time event cost, already absorbed in Q2 operating income.

    Negative FX impactQ2 FY25

    $6 million

    Mitigation: Absorbed in Q2 operating income; ongoing factor for international operations.

    Stable enterprise customer usage growthOngoing

    Roughly stable usage growth in Q2

    Mitigation: Enterprises are going through controlled cloud migration and AI adoption, limited by their bandwidth. Expect more growth as AI applications go into production.

    What to watch in Q3 FY25

    5

    AI Native Cohort Revenue Contribution

    next quarter
    Current11% of Q2 revenues, 10 points of YoY revenue growth
    TargetContinued strong growth or signs of volatility/optimization

    Why it matters

    The AI native cohort is a significant growth driver, and any volatility could impact overall revenue growth.

    We remain mindful that we may see volatility in our revenue growth on the backdrop of long-term volume growth from this cohort as customers renew with us on different terms and as they may choose to optimize cloud and observability usage over time⏳.

    Q&A highlights

    6

    How will the AI opportunity broaden beyond current AI natives, especially with inference, and what is the status of sales capacity ramp-up?

    Olivier explained AI's multi-layered impact, from infrastructure (GPU monitoring) to new observability challenges for non-deterministic AI applications. David noted successful execution of sales hiring plans from late 2025, with good signs of productivity in core capacity.

    “The whole market is going there, not just the AI natives, the AI natives are definitely doing that today, both applications are running on models and code that has been largely written by agents, but the rest of the market is going there.”

    asked by Raimo Lenschow · answered by Olivier Pomel

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and AI Native Growth

    Datadog reported Q2 revenue of $827 million, a 28% year-over-year increase, surpassing guidance. This performance was significantly bolstered by the AI native cohort, which saw strong usage growth and contributed 11% of Q2 revenues, up from 8% in the prior quarter, and accounted for 10 points of year-over-year revenue growth. The company noted consistent and steady usage growth in the rest of the business, alongside a healthy pace of cloud migration and digital transformation.

    02

    Platform Adoption and Product Expansion

    The company's platform strategy continues to drive increased adoption, with 83% of customers using two or more products, 52% using four or more (up from 49% YoY), 29% using six or more (up from 25% YoY), and 14% using eight or more (up from 11% YoY). The security suite of products achieved a significant milestone, now generating over $100 million in ARR and growing mid-40s percent year-over-year, indicating strong traction in this critical area.

    03

    DASH Conference Innovations

    At its DASH user conference in June, Datadog announced over 125 new products and features. Key innovations included fully autonomous AI agents (SRE, Dev, Security), an AI voice agent for incident response, and the Datadog internal developer portal. Observability was reimagined with APM Latency Investigator, Proactive App Recommendations, and new Flex Frozen tier for log storage. Security products were enhanced to cover new AI attack vectors, and end-to-end AI and data observability capabilities were introduced, including GPU monitoring and LLM observability.

    04

    Strategic Customer Wins and Expansions

    Datadog secured several significant deals and expansions in Q2. These included a 7-figure annualized expansion and 3-year contract worth over $60 million with a major bank, a 7-figure expansion to an 8-figure annualized contract with a leading U.S. insurance company, and a nearly 7-figure annualized expansion with an American media conglomerate. The company also landed 7-figure annualized deals with a Brazilian e-commerce firm and a major American retailer's delivery app, and welcomed back a U.S. mortgage company with a nearly 7-figure annualized deal.

    05

    Long-Term AI Opportunity

    Olivier Pomel emphasized AI as a generational growth opportunity, acting as a tailwind by increasing cloud consumption and driving platform usage, particularly among AI native customers (hundreds in this group, including 8 of the top 10 leading AI companies). AI also introduces new observability challenges, which Datadog addresses with specialized products like GPU monitoring and LLM observability. Furthermore, Datadog is incorporating AI into its platform to deliver more value, exemplified by its Bits AI agents and the Toto foundational model for time series forecasting.

    06

    Financial Discipline and Cloud Efficiency

    Despite increased investments and the $13 million cost of the DASH conference, non-GAAP operating margin reached 20%. The company successfully improved its non-GAAP gross margin to 80.9% through cloud efficiency projects, which are expected to continue yielding benefits in the second half of the year. OpEx grew 30% year-over-year, reflecting execution on hiring plans to pursue long-term growth opportunities, while managing FX headwinds🌐 of $6 million.

    AI-generated summary of the company’s earnings call. Not investment advice.