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    DDOG
    Earnings call· Jun 2026(Q2 FY26)

    Datadog Q2 FY26 earnings call DDOG

    Aug 6, 2026 Source

    Executive summary

    Datadog Q2 FY26 — Revenue Accelerates Across Customer Base Despite Large Customer Usage Reduction

    Datadog delivered robust Q2 FY26 results, with revenue accelerating across its broad customer base, driven by both AI-native and non-AI customers. The company continues to rapidly innovate, launching over 100 new products and features, particularly in AI-powered observability and security. While the underlying business momentum is strong, guidance for Q3 and the full year reflects a de-risked approach following a usage reduction from its largest customer.

    Highlights

    5

    • Revenue reached $1.12 billion, marking a 36% year-over-year increase and exceeding the high end of guidance.

    • Revenue growth for non-AI customers accelerated to the high 20% year-over-year, up from mid-20s last quarter and 18% in the year-ago quarter.

    • Free cash flow was $279 million, resulting in a strong 25% free cash flow margin.

    • Product adoption continues to strengthen, with 58% of customers now using 4 or more products (up from 52% a year ago), 37% using 6 or more products (up from 29% a year ago), and 13% using 10 or more products (up from 7% a year ago).

    • New logo dollar bookings showed particular strength in enterprise, with annualized bookings more than doubling from a year ago.

    Concerns

    1

    • Guidance for Q3 and full-year FY26 incorporates a usage reduction from the largest customer, leading to a sequential slowdown in Q3 revenue growth guidance to 28-29% year-over-year.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $1.135 billion to $1.145 billion
    high materiality
    High
    Non-GAAP operating income
    $260 million to $270 million
    medium materiality
    High
    Non-GAAP net income per share
    $0.63 to $0.65
    medium materiality
    High
    Revenue
    $4.45 billion to $4.47 billion
    high materiality
    High
    Non-GAAP operating income
    $1.01 billion to $1.03 billion
    medium materiality
    High
    Non-GAAP net income per share
    $2.50 to $2.54
    medium materiality
    High
    Net interest and other income
    approximately $180 million
    low materiality
    High
    Cash taxes
    about $30 million to $40 million
    low materiality
    High
    Non-GAAP tax rate
    21%
    low materiality
    High
    CapEx and capitalized software
    4% to 5%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Non-AI customers
    Revenue growth accelerated from mid-20s last quarter and 18% in the year-ago quarter.
    		—high 20%——
    AI customers
    AI customers continue to grow rapidly and diversify, including hyperscalers using Datadog for in-house AI labs.
    Total AI customers: >750AI customers spending >$1M annually: 31AI customers spending >$10M annually: 8
    		—rapidly——

    Operational metrics

    23
    Revenue
    $1.12B36% year-over-year
    Q2 FY26

    Above the high end of guidance range.

    Revenue growth (non-AI customers)
    high 20%year-over-year
    Q2 FY26

    Accelerated again this quarter.

    Customers
    33,400up from about 31,400 a year ago
    Q2 FY26

    Total customer count.

    Customers with ARR $100K+
    4,720up from about 3,850 a year ago
    Q2 FY26

    These customers generated about 91% of total ARR.

    ARR from $100K+ customers
    91%
    Q2 FY26

    Percentage of total ARR generated by customers with $100K or more ARR.

    Customers using 4+ products
    58%up from 52% a year ago
    Q2 FY26

    Product adoption metric.

    Customers using 6+ products
    37%up from 29% a year ago
    Q2 FY26

    Product adoption metric.

    Customers using 10+ products
    13%up from 7% a year ago
    Q2 FY26

    Product adoption metric.

    RUM ARR
    >$200Mover 50% growth year-over-year
    Q2 FY26

    Real User Monitoring Annual Recurring Revenue.

    AI customers
    >750
    Q2 FY26

    Customers using Datadog to monitor and improve their tech stacks for AI.

    AI customers spending >$1M annually
    31
    Q2 FY26

    Within the 750+ AI customer group.

    AI customers spending >$10M annually
    8
    Q2 FY26

    Within the 750+ AI customer group.

    Agentic activity (MCP endpoints)
    quadruplingquarter-over-quarter
    Q2 FY26

    Rapid growth in agentic activity.

    New logo annualized bookings (enterprise)
    more than doubledfrom a year ago
    Q2 FY26

    Strong new logo dollar bookings.

    YoY revenue growth from new customers
    about 30%up from 25% in Q1
    Q2 FY26

    Portion of year-over-year revenue growth related to new customers.

    Non-GAAP gross profit
    $892M
    Q2 FY26

    Reported gross profit.

    Non-GAAP gross margin
    79.6%vs 80.2% last quarter and 80.9% in the year ago quarter
    Q2 FY26

    Gross margin varies with investments into innovations, offset by efficiency efforts. Expectations for gross margin remain in the 80% plus or minus range historically.

    OpEx growth
    26%year-over-year
    Q2 FY26

    Operating expenses growth.

    DASH Conference cost
    $15M
    Q2 FY26

    Cost of the User Conference held in June.

    Non-GAAP operating income
    $257M
    Q2 FY26

    Reported operating income.

    Non-GAAP operating margin
    23%compared to 22% last quarter and 20% in the year ago quarter
    Q2 FY26

    Reported operating margin.

    Cash and investments balance
    $5B
    Q2 FY26

    Cash, cash equivalents and marketable securities at quarter end.

    Free cash flow margin
    25%
    Q2 FY26

    Free cash flow as a percentage of revenue.

    Industry KPIs

    12
    MetricValueDetails
    Capacity CAPEX4% to 5%% of revenue
    Revenue growth$1.12BUSD
    Arr net new arr4,720customers
    Rpo current rpo$3.47B (total RPO), about 40% (current RPO growth)USD (total RPO), % (current RPO growth)
    Bookings billings$1.18BUSD
    Customer account count33,400customers
    Large deal new logo metricsmore than doubled
    Gross retention renewal ratemid- to high 90s%
    Multi product platform attach58% (4+ products), 37% (6+ products), 13% (10+ products)%
    Operating FCF margin rule of 4023% (operating margin), 25% (FCF margin)%
    Ai product adoption monetizationover 750 (AI customers), quadrupling (agentic activity QoQ), 22x (agentic activity vs Q4 FY25)customers (AI customers), null (agentic activity)
    Net revenue net dollar retentionlow 120s%

    Orderbook & backlog

    3
    Billings$1.18BQ2 FY26

    up 38% year-over-year

    Calculated billings

    Remaining Performance Obligations (RPO)$3.47BQ2 FY26

    up 43% year-over-year

    Total RPO; RPO duration increased year-over-year

    Current RPOabout 40%Q2 FY26

    grew year-over-year

    Growth rate

    Product announcements

    9
    ProductTypeDetails
    Bits AI for DevOps looplaunch
    Bits AI for development looplaunch
    Datadog for AIexpansion
    Network Monitoring enhancementsupdate
    Bits Database Optimizerlaunch
    Log Management enhancementsupdate
    [indiscernible] monitoringlaunch
    Infinite cardinality metricslaunch
    AI Security innovationslaunch

    Deals & partnerships

    7
    Adaptive MLAcquisition to accelerate AI research efforts.

    Acquisition closed in June.

    Fortune 10 companyExpanding e-commerce business, using Datadog Log Management and 10 other products.6-figure annualized deal

    Win validates focus on largest companies and complex environments.

    2 new AI labsRapidly scaling AI model training workloads and preparing for major product launches.7-figure annualized deals

    Using Datadog for observability and Bits AI to rapidly build monitors, dashboards, and alerts.

    South American bankConsolidating fragmented legacy monitoring stack and manual triaging.7-figure annualized deal

    Consolidated into Datadog with 11 products, gaining visibility from mainframe to microservices. Adopting Cloud SIEM and data security, evaluating other security products.

    Fortune 100 health insurance companyDelivering great experience to members while protecting PII across dozens of business units.7-figure annualized expansion for an 8-figure annualized deal

    Datadog's HIPAA compliance and PII handling in RUM, Log Management, and Cloud SIEM differentiated. Bits AI investigation is used. Customer will expand to 19 Datadog products.

    One of the world's largest online media companiesStandardizing on Datadog across its business, displacing 4 commercial and internal tools.multiyear over $30 million TCV dealmultiyear

    Proved value beyond core observability with product analytics, CI visibility, data observability, and [indiscernible] cost management. Includes largest win to date for Bring Your Own Cloud, displacing legacy commercial logging tool.

    Leading AI companyLong-time very large customer using 17 Datadog products for unified visibility on production workloads.9-figure renewal

    Enables unified visibility on production workloads at a very large scale.

    Risks & headwinds

    2
    Usage reduction from largest customerQ3 FY26 and full-year FY26

    Impacts Q3 and full-year 2026 guidance

    Mitigation: Management has fully de-risked the guidance for the rest of the year with respect to this customer.

    Gross margin slight declineQ2 FY26

    79.6% in Q2 FY26 vs 80.2% last quarter and 80.9% in the year ago quarter

    Mitigation: Due to investments into innovations for customers, offset by efficiency efforts. No change in expectations for gross margin, which has been in the 80% plus or minus range historically.

    What to watch in Q3 FY26

    5

    Largest customer usage trend

    Q3 FY26 and beyond
    CurrentUsage reduction starting Q3 FY26
    TargetStabilization or return to growth

    Why it matters

    This customer significantly impacts overall revenue growth and guidance, and its trajectory will indicate the effectiveness of management's de-risking strategy.

    Regarding our largest customer, we have seen a usage reduction, which is incorporated in our Q3 and full year 2026 guidance.

    Q&A highlights

    8

    Can you provide more details on the new contract with your largest customer, specifically regarding its duration, pricing, and whether the lower usage is due to a lower unit price or actual downsell?

    Management stated they fully de-risked the guidance for the rest of the year due to the usage reduction from this customer, but cannot share specific customer details. They emphasized that the rest of the business is accelerating steadily, with 5 quarters of continuous acceleration, and they feel very good about the market.

    “if you back out our largest customer from our growth, you get pretty much the same growth rate as the rest of the business has been accelerating very steadily. Actually, we've seen, I think, now 5 quarters of continuous acceleration from the rest of the business.”

    asked by Sanjit Singh · answered by Olivier Pomel

    3 min read7 chapters

    Detailed Narrative

    01

    AI as a Growth Driver

    AI is proving to be a significant tailwind for Datadog, accelerating cloud consumption and driving increased platform usage across its customer base. As of Q2, over 750 AI customers, including all top 10 AI leaders, leverage Datadog for monitoring and optimizing their tech stacks. The company observed rapid growth in agentic activity, with MCP endpoints quadrupling quarter-over-quarter and growing more than 22x compared to Q4 FY25, indicating strong adoption of AI-driven workflows.

    02

    Extensive Product Innovation at DASH

    At its DASH User Conference in June, Datadog unveiled over 100 new products and features. Key announcements included expanded Bits AI capabilities for both DevOps (e.g., automated monitoring, root cause identification, fix implementation) and development loops (e.g., AI release validation, code generation, synthetic test automation). The company also enhanced Datadog for AI to observe and secure the AI stack end-to-end, and broadened its platform for data ingestion, correlation, and analysis, including new features for network, database, and log management.

    03

    Strong Customer Adoption and Expansion

    Datadog's platform strategy continues to resonate, driving deeper product adoption among its customer base. The percentage of customers using 4 or more products increased to 58% (from 52% YoY), 6 or more products to 37% (from 29% YoY), and 10 or more products to 13% (from 7% YoY). Real User Monitoring (RUM) now exceeds $200 million in ARR, accelerating at over 50% growth year-over-year, demonstrating the value customers derive from the platform.

    04

    Enterprise and New Logo Momentum

    The company reported strong new logo dollar bookings, particularly in the enterprise segment, where annualized bookings more than doubled year-over-year. New logos are also ramping faster, contributing approximately 30% of the year-over-year revenue growth in Q2, an increase from 25% in Q1. This indicates effective go-to-market strategies and a broad-based demand for Datadog's offerings.

    05

    Strategic Acquisitions and Research

    Datadog closed the acquisition of Adaptive ML in June to accelerate its AI research efforts. The company continues to conduct groundbreaking research, highlighted by the second version of its Toto time series model in May, which demonstrated state-of-the-art performance and true scalability. These investments aim to power Bits AI and integrate other data modalities, leading to significant capability enhancements for customers.

    06

    AI Security Innovations

    Recognizing the new complexities and security challenges introduced by next-gen AI, Datadog launched several innovations to secure the AI stack. These include AI Guard for agent discovery and runtime protections, AI Guard for coding agents, and a Runtime Prioritization Engine to reduce vulnerability noise by over 95%. The company is also expanding Bits Security Analyst to run unknown Datadog teams, leveraging its broad data set for smart central learnings.

    07

    Geographic Performance and Customer Cohorts

    Datadog is performing well across all regions, noting particular strength in the Americas, largely attributed to the concentration of AI activity in the U.S., as well as strong execution in LATAM. The company highlighted that revenue growth for its non-AI customers accelerated to the high 20% year-over-year, while its AI customers continue to grow rapidly and diversify, including hyperscalers using Datadog for in-house AI labs.

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