Summary
Datadog's second quarter of fiscal 2024 delivered $645.28 million in revenue, up 26.7% from the prior-year quarter. Gross profit rose 28.0% to $521.78 million. Gross margin reached 80.9%, up 0.9 percentage points. The company swung to GAAP operating income of $12.62 million from an operating loss a year earlier, and operating margin was 2.0%, up 6.3 percentage points. Net income was $43.82 million, compared with a net loss in the prior-year quarter. Diluted EPS was $0.12, also a swing to profit. For the six months ended June 30, 2024, revenue was $1.26 billion, up 26.8%, and net income was $86.46 million, compared with a net loss in the prior-year period. Non-GAAP operating income was $157.54 million, and non-GAAP net income per diluted share was $0.43. The gap between GAAP and non-GAAP profitability remains wide, so investors should track both.
Customer growth remained a central part of the story. Datadog ended the quarter with about 3,390 customers generating $100,000 or more in annual run-rate revenue, up from about 2,990 a year earlier, an increase of 13%. Those larger customers represented 87% of ARR, up from 85%. Total customers were approximately 28,700, compared with approximately 26,100 a year earlier. Product adoption also deepened. About 83% of customers used more than one product, up from about 82%. About 49% used more than four products, up from about 45%. About 25% used more than six products, up from about 21%. About 11% used more than eight products, up from about 7%. The company announced general availability of LLM Observability and several other products at DASH 2024, including security additions, Live Debugger, Log Workspaces, Datadog On-Call, Kubernetes Autoscaling, Data Jobs Monitoring, and App Builder.
Cash generation improved. Operating cash flow was $164.42 million in the quarter, up 7.4% from the prior-year quarter. Capital expenditures were $4.42 million, up 88.8%. Free cash flow, a non-GAAP measure, was $144 million in the quarter. For the six months ended June 30, 2024, operating cash flow was $376.69 million, up 31.3%, and free cash flow was $330.5 million. Deferred revenue was $801.56 million, up 41.3% from the prior-year quarter. Remaining performance obligations were $1.79 billion, up 43.1%. Those backlog and deferred revenue figures suggest solid contracted demand, though they can be affected by billing timing and contract duration.
Management provided third quarter and full year 2024 guidance. For the third quarter, revenue is expected between $660 million and $664 million. Non-GAAP operating income is expected between $146 million and $150 million. Non-GAAP net income per share is expected between $0.38 and $0.40. For the full fiscal year 2024, revenue is expected between $2.62 billion and $2.63 billion. Non-GAAP operating income is expected between $620 million and $630 million. Non-GAAP net income per share is expected between $1.62 and $1.66. The company did not reconcile these non-GAAP outlook figures to GAAP because of uncertainty around items such as stock-based compensation and employer payroll taxes on equity incentive plans.
The quarter also came with cautionary signals. Datadog's trailing 12-month dollar-based net retention rate was in the mid-110%'s as of June 30, 2024, down from the mid-120%'s a year earlier. The company attributed the decline primarily to slower usage growth from existing customers, which may be related to the uncertain macroeconomic environment. Management noted that macroeconomic events, including rising inflation, higher interest rates, the Russian invasion of Ukraine, and the conflict in the Middle East, have led to economic uncertainty. Businesses may slow information technology spending during downturns. Other risks include competition, security breaches, interruptions or performance problems, dependence on existing customers purchasing additional subscriptions, and the challenge of managing growth. The company also has a history of operating losses, though it reported GAAP net income in the current quarter and year to date.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $645.3M | $611.3M | +5.6% | $509.5M | +26.7% |
| Gross profit | $521.8M | $501.2M | +4.1% | $407.6M | +28.0% |
| Gross margin | 80.9% | 82.0% | -1.1 pp | 80.0% | +0.8 pp |
| Research & development | $274.6M | $270.0M | +1.7% | $239.5M | +14.7% |
| Sales & marketing | $187.0M | $173.9M | +7.5% | $147.5M | +26.8% |
| General & administrative | $47.6M | $45.3M | +5.0% | $42.7M | +11.5% |
| Total operating expenses | $509.2M | $489.2M | +4.1% | $429.6M | +18.5% |
| Operating income (loss) | $12.6M | $12.0M | +5.2% | -$22.0M | +157.3% |
| Operating margin | 2.0% | 2.0% | ±0.0 pp | -4.3% | +6.3 pp |
| Net income (loss) | $43.8M | $42.6M | +2.8% | -$4.0M | +1204.2% |
| Net margin | 6.8% | 7.0% | -0.2 pp | -0.8% | +7.6 pp |
| Diluted EPS | $0.12 | $0.12 | ±$0.00 | -$0.01 | +$0.13 |
| Net retention rate | 110.0% | 110.0% | ±0.0 pp | 120.0% | -10.0 pp |
Risks
MD&A reports that in recent quarters Datadog has seen slower usage growth from existing customers, which may be related to the uncertain macroeconomic environment. The trailing 12-month dollar-based net retention rate as of June 30, 2024 was in the mid-110%'s, declining from the mid-120%'s as of June 30, 2023, and the company attributes the decline primarily to slower usage growth from existing customers.
Risk Factors state that even if revenue continues to increase, Datadog expects its revenue growth rate to decline in the future due to factors including maturation of its business. MD&A also notes that as the growth of the business has decelerated in recent quarters, the trailing 12-month dollar-based net retention rate has declined.
Risk Factors state Datadog incorporates AI, including generative AI, into its products and that competitors may more successfully incorporate AI and achieve higher market acceptance, impairing its ability to compete. The EU Artificial Intelligence Act will come into force in August 2024, and compliance may require significant research, development, and management attention.
Risk Factors disclose that the conditional conversion feature of the 2025 Notes was triggered during the quarter ended March 31, 2024, entitling holders to convert at any time during specified periods. If holders elect to convert and Datadog cannot satisfy the obligation solely with Class A common stock, cash settlement could adversely affect liquidity.
Risk Factors state that Datadog targets enterprise customers, where sales cycles are longer, customer requirements are more complex, and upfront sales costs are substantial. Larger enterprise customers may begin with limited deployments but demand configuration, integration, and pricing negotiations without guaranteeing broad deployment.
Risk Factors note that an increasing number of sales through cloud provider marketplaces could reduce both the number of customers with whom Datadog has direct commercial relationships and the profit margins on sales made through such marketplaces.
SaaS KPIs
All quarters →Total Customers
Free Cash Flow
Non-GAAP Operating Margin
Free Cash Flow Margin
Customers Using More Than One Product
Customers with ARR of $100,000 or more
Non-GAAP Gross Margin
Customers Using More Than Four Products
Customers Using More Than Six Products
Non-GAAP Operating Income
Customers with ARR of $100,000 or more (as % of ARR)
Customers Using More Than Eight Products
Summary, forecast, risks and KPIs are extracted from Datadog, Inc.'s SEC filings for Q2 FY2024 (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.