Summary
Datadog closed FY2021 Q2 with revenue of $233.5 million, up 66.8% from the prior-year quarter, and year-to-date revenue of $432.1 million, up 59.3%. Gross profit was $176.45 million for the quarter, up 58.8%, and $328.33 million year to date, up 52.1%. GAAP gross margin was 75.6% in the quarter, down 3.8 percentage points, and 76.0% year to date, down 3.6 percentage points. Management tied the compression to increased spend with third-party cloud infrastructure providers. Revenue growth held up at scale. The cost line did not. GAAP operating loss was $9.89 million for the quarter, a swing from operating income in the prior-year quarter. GAAP operating margin was -4.2%, down 4.7 percentage points. On a non-GAAP basis, operating income was $30.9 million and operating margin was 13%.
GAAP net loss was $9.36 million for the quarter, a swing from net income in the prior-year quarter, and diluted EPS was -$0.03. Year-to-date GAAP net loss was $22.43 million, and year-to-date diluted EPS was -$0.07. Non-GAAP net income per diluted share was $0.09 for the quarter. Stock-based compensation, employer payroll taxes on equity transactions, and amortization of acquired intangibles drove most of the gap between the GAAP and non-GAAP presentations. Management has warned that items like those can be material to results computed under GAAP, which makes the adjusted numbers a supplement rather than a substitute for the reported figures.
Cash generation kept improving. Operating cash flow was $51.7 million for the quarter, up 109.1%, and $103.4 million year to date, up 111.0%. Free cash flow, a non-GAAP measure that subtracts capital expenditures and capitalized software development costs, was $42.3 million for the quarter and $86.8 million year to date. Capital expenditures were $3.23 million for the quarter, up 131.0%. Deferred revenue, current portion, was $264.65 million, up 62.5% from the prior-year quarter, a sign of billings momentum.
The customer base widened and deepened. Datadog had 1,610 customers with ARR of $100,000 or more as of June 30, 2021, up 59% from 1,015 a year earlier. Those accounts produced 80% of ARR, up from 76%. Total customers were approximately 16,400, against approximately 12,100 a year earlier. The dollar-based net retention rate stayed above 130%, and about 75% of customers used more than one product, up from about 68%. Product news included general availability for Cloud Security Posture Management and Cloud Workload Security, a beta for CI Visibility, general availability of the AWS Lambda extension, an integration with the Salesforce platform, and availability on the Google Cloud Marketplace.
Guidance covers the third quarter of 2021 and the full year 2021. For the third quarter, management guided non-GAAP operating income of $18 million to $20 million and non-GAAP net income per share of $0.05 to $0.06, on roughly 344 million weighted average diluted shares. For the full year, the outlook was non-GAAP operating income of $87 million to $93 million and non-GAAP net income per share of $0.26 to $0.28, on the same share count. Those non-GAAP expectations were not reconciled to the closest GAAP measures because of uncertainty about stock-based compensation and employer payroll taxes on equity incentive plans.
The risk list in the release is familiar but real. Datadog flagged that recent rapid growth may not be indicative of future growth, that it has a history of operating losses, and that it depends on existing customers buying more and renewing. Other flagged items include attracting new customers, expanding sales and marketing capabilities, security breaches, service interruptions, rapid technology change, competition, managing growth, general market and economic conditions, and the ongoing COVID-19 pandemic. The gross margin pressure from third-party cloud infrastructure costs sits alongside those risks, since hosting spend scales with usage and is set by a handful of vendors. Deferred revenue and cash flow give some cushion, but the quarter shows the company is still spending heavily to grow.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $233.5M | $198.5M | +17.6% | $140.0M | +66.8% |
| Gross profit | $176.5M | $151.9M | +16.2% | $111.1M | +58.8% |
| Gross margin | 75.5% | 76.5% | -1.0 pp | 79.4% | -3.8 pp |
| Research & development | $94.8M | $79.3M | +19.6% | $45.7M | +107.6% |
| Sales & marketing | $70.4M | $64.4M | +9.4% | $51.3M | +37.3% |
| General & administrative | $21.1M | $21.1M | +0.2% | $13.5M | +56.1% |
| Total operating expenses | $186.3M | $164.7M | +13.1% | $110.5M | +68.7% |
| Operating income (loss) | -$9.9M | -$12.8M | +22.9% | $654.0K | -1611.6% |
| Operating margin | -4.2% | -6.5% | +2.2 pp | 0.5% | -4.7 pp |
| Net income (loss) | -$9.4M | -$13.1M | +28.4% | $284.0K | -3396.5% |
| Net margin | -4.0% | -6.6% | +2.6 pp | 0.2% | -4.2 pp |
| Diluted EPS | -$0.03 | -$0.04 | +$0.01 | $0.00 | -$0.03 |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | 130.0% | ±0.0 pp |
Risks
The company outsources substantially all infrastructure to third-party cloud providers, and increased spend with these providers was the primary reason gross margin decreased 3.8 percentage points in the quarter ended June 30, 2021 versus the prior-year quarter. Capacity limitations or service disruptions could impede onboarding or expansion of existing customers.
Operating income swung to a loss of $9.9 million in the quarter ended June 30, 2021 from $0.7 million income in the prior-year quarter, and net loss was $22.4 million for the six months ended June 30, 2021 versus $6.8 million income for the six months ended June 30, 2020. Costs are expected to increase, so the company may not achieve or sustain profitability.
The company competes with larger diversified technology vendors and cloud providers, including IBM, Microsoft, Cisco, Splunk, Elastic, AWS, GCP, and Microsoft Azure. Some competitors have greater resources, and sales through cloud provider marketplaces could reduce direct customer relationships and profit margins.
Cross-border personal data transfers from Europe face uncertainty after the Schrems II ruling invalidated the EU-U.S. Privacy Shield, and new Standard Contractual Clauses adopted June 4, 2021 may require transfer impact assessments and additional security measures. This may increase the difficulty and cost of selling to European customers and lead to longer sales cycles.
The ongoing COVID-19 pandemic and related economic downturn could continue to disrupt customer spending, sales cycles, and international expansion. The company notes the extent remains uncertain and that it experienced some impact to the rate of usage growth from existing customers during the second quarter of 2020.
Revenue grew 66.8% in the quarter ended June 30, 2021 and 59.3% in the six months ended June 30, 2021, but the risk factors state recent rapid growth may not be indicative of future growth and the revenue growth rate is expected to decline as the business matures. This makes forecasting future results difficult.
The company plans to continue expanding its direct sales force and sales and marketing programs, which will require significant financial and other resources. If hiring, sales personnel productivity, or marketing programs are ineffective, revenue growth could be smaller than anticipated.
The company targets enterprise customers, where sales cycles are longer and more complex, with substantial upfront costs and less predictability. Large enterprise deployments may begin on a limited basis, but require configuration, integration services, and pricing negotiations with no guarantee of broad deployment.
The company has made acquisitions and may continue to seek acquisitions or strategic investments, which could divert management attention, disrupt the business, dilute stockholders, or result in impairment charges if expected synergies are not achieved.
The company issued $747.5 million aggregate principal amount of 0.125% Convertible Senior Notes due 2025. The conditional conversion feature, if triggered, could require cash settlement or reclassify the notes as a current liability, reducing net working capital, and capped call counterparty risk could lead to greater dilution.
The company previously experienced a July 2016 unauthorized access and data exfiltration involving customer credentials, and remote work may increase phishing and spam risks. Ransomware and supply chain attacks are becoming more prevalent and could cause interruptions, data loss, and significant expenses.
The company plans further geographic expansion, with revenue outside North America at 28% of total for the six months ended June 30, 2021, and 38% of full-time employees outside the United States, 42% of whom were in France. Failure to execute on international expansion could harm results.
SaaS KPIs
All quarters →Total Customers
Free Cash Flow
Non-GAAP Operating Margin
Customers with ARR of $100,000 or more
Non-GAAP Gross Margin
Dollar-Based Net Retention Rate
Percentage of ARR from customers with ARR of $100,000 or more
Summary, forecast, risks and KPIs are extracted from Datadog, Inc.'s SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.