Datadog, Inc. Q1 FY2025 earnings

Datadog's first quarter of fiscal 2025 showed a familiar pattern: strong top-line growth paired with GAAP profitability pressure. Revenue rose 24.6% year over year to $761.6 million, and gross profit reached $603.9 million. The gross margin was 79.3%, down 2.7 percentage points. Operating income swung to a GAAP loss of $12.4 million, and the operating margin was -1.6%, down 3.6 percentage points. Net income fell 42.2% to $24.6 million, while diluted EPS was $0.07, down 41.7%. On a non-GAAP basis, operating income was $167 million and non-GAAP operating margin was 22%. Non-GAAP net income per diluted share was $0.46.

Cash generation remained a bright spot. Operating cash flow was $271.5 million, up 27.9%, and capital expenditures were $8.7 million, down 38.2%. Free cash flow was $244 million. Operating cash flow and free cash flow are different measures, and the company reports both. Deferred revenue, current only, was $949.1 million, up 23.7%. Remaining performance obligations were $2.31 billion, up 33.4%. The company also completed acquisitions of Eppo and Metaplane, adding feature flagging, experimentation, and data observability capabilities.

Operationally, Datadog kept expanding within large accounts. The company had about 3,770 customers with ARR of $100,000 or more as of March 31, 2025, up from about 3,340 a year earlier. Those large customers represented 88% of ARR. Total customers were about 30,500, compared with about 28,000 a year earlier. The trailing 12-month dollar-based net retention rate was in the high-110%'s, up from mid-110%'s. Product adoption also broadened: approximately 83% of customers used more than one product, 51% used more than four, 28% used more than six, and 13% used more than eight. The company announced DASH, its eighth annual global conference, for June 10-11, 2025 in New York City, and it plans a new data center in Australia.

Guidance points to continued growth but also to margin pressure. For the second quarter of 2025, Datadog expects revenue between $787 million and $791 million, non-GAAP operating income between $148 million and $152 million, and non-GAAP net income per share between $0.40 and $0.42, assuming approximately 361 million weighted average diluted shares. For the full year 2025, the company guides revenue between $3.215 billion and $3.235 billion, non-GAAP operating income between $625 million and $645 million, and non-GAAP net income per share between $1.67 and $1.71, assuming approximately 362 million weighted average diluted shares. Datadog does not reconcile these non-GAAP guidance figures to GAAP without unreasonable effort because of uncertainty around stock-based compensation and related payroll taxes.

Risks remain familiar for a high-growth software company. Management cites macroeconomic uncertainty, trade policies, tariffs, and the potential for reduced information technology spending. The company also points to competition, its history of operating losses, dependence on existing customers adding subscriptions, and the risk of security breaches or service interruptions. Cloud infrastructure hosting costs are a clear pressure point, and gross margin declined as spend with third-party cloud providers increased. The quarter shows durable demand and strong cash flow, but GAAP profitability and gross margin are moving in the wrong direction.