Summary
Datadog's second quarter revenue reached $826.8 million, up 28.1% from $645.3 million a year earlier. The top line kept its pace, but profitability moved the other way. The company posted a GAAP operating loss of $35.5 million for the quarter, compared with operating income of $12.6 million in the prior-year quarter. Operating margin fell to negative 4.3% from 2.0%. Net income dropped 94.0% to $2.6 million from $43.8 million, and diluted earnings per share fell to $0.01 from $0.12. Gross profit rose 26.6% to $660.8 million, though gross margin slipped to 79.9% from 80.9%, a decline of 0.9 percentage points.
On a non-GAAP basis the picture looks steadier. Non-GAAP operating income was $164 million and non-GAAP operating margin was 20%, down from 24% a year earlier. Non-GAAP net income per diluted share was $0.46, against $0.43 in the prior-year quarter. The gap between the two sets of numbers rests largely on stock-based compensation, which totaled $180.5 million in the quarter versus $134.7 million a year ago.
Cash generation stayed solid. Operating cash flow was $200.1 million for the quarter, up 21.7% from $164.4 million, and free cash flow was $165.4 million. For the six months, operating cash flow rose 25.2% to $471.6 million and free cash flow was $409.7 million. Capital expenditures climbed to $15.2 million in the quarter, up 243.2% from $4.4 million, as the company expanded its infrastructure. Deferred revenue, current portion, was $966.4 million at June 30, 2025, up 20.6%. Remaining performance obligations reached $2.43 billion, up 35.3%. Datadog ended the quarter with $489.0 million in cash and cash equivalents and $3.4 billion in marketable securities, which the press release groups as $3.9 billion.
Customer metrics point to continued expansion inside large accounts. Datadog had about 3,850 customers with ARR of $100,000 or more as of June 30, 2025, up 14% from about 3,390 a year earlier, and those customers represented 89% of ARR, up from 87%. Total customers grew to approximately 31,400 from approximately 28,700. The trailing 12-month dollar-based net retention rate was about 120%, up from mid-110%'s a year earlier, which the company attributed to increased usage growth from existing customers. Adoption of the wider platform also deepened: 52% of customers used more than four products, up from 49%, and 29% used more than six, up from 25%. At its DASH 2025 conference the company unveiled more than 125 products, capabilities and features, and it joined the S&P 500 Index during the quarter.
Management issued third quarter 2025 guidance covering revenue, non-GAAP operating income and non-GAAP net income per share. The non-GAAP operating income range for the quarter is $176 million to $180 million, and non-GAAP net income per share is guided to $0.44 to $0.46, on roughly 364 million weighted average diluted shares. Full fiscal year 2025 guidance also covers revenue alongside non-GAAP operating income of $684 million to $694 million and non-GAAP net income per share of $1.80 to $1.83, on the same share count. The company does not reconcile these non-GAAP figures to GAAP because of uncertainty around items such as stock-based compensation and employer payroll taxes on equity incentive plans.
Cost growth outpaced revenue in several lines. Research and development expense rose 41% to $387.5 million, sales and marketing rose 28% to $239.0 million, and general and administrative rose 47% to $69.8 million. Cost of revenue rose 34%, driven by a $38.3 million increase in third-party cloud infrastructure hosting and software costs, which also weighed on gross margin. Management lists familiar risks: dependence on existing customers buying more and renewing, competition, the possibility of a security breach, and macroeconomic pressure including trade policies, tariffs and reduced information technology spending. The company is also evaluating the impact of the One Big Beautiful Bill Act, enacted on July 4, 2025. During the quarter, Datadog paid about $634.1 million in cash and issued approximately 1,354,569 shares to settle conversions of its 2025 Notes, and it spent $115.3 million in cash on acquisitions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $826.8M | $761.6M | +8.6% | $645.3M | +28.1% |
| Gross profit | $660.8M | $603.9M | +9.4% | $521.8M | +26.6% |
| Gross margin | 79.9% | 79.3% | +0.6 pp | 80.9% | -0.9 pp |
| Research & development | $387.5M | $341.1M | +13.6% | $274.6M | +41.1% |
| Sales & marketing | $239.0M | $214.3M | +11.5% | $187.0M | +27.8% |
| General & administrative | $69.8M | $61.0M | +14.4% | $47.6M | +46.7% |
| Total operating expenses | $696.3M | $616.3M | +13.0% | $509.2M | +36.8% |
| Operating income (loss) | -$35.5M | -$12.4M | -185.8% | $12.6M | -381.3% |
| Operating margin | -4.3% | -1.6% | -2.7 pp | 2.0% | -6.3 pp |
| Net income (loss) | $2.6M | $24.6M | -89.3% | $43.8M | -94.0% |
| Net margin | 0.3% | 3.2% | -2.9 pp | 6.8% | -6.5 pp |
| Diluted EPS | $0.01 | $0.07 | -$0.06 | $0.12 | -$0.11 |
| Net retention rate | 120.0% | 110.0% | +10.0 pp | 110.0% | +10.0 pp |
Risks
The risk factors state that larger customers in the AI-native cohort, which includes the company's largest customer and represented approximately ten percentage points of year-over-year revenue growth for the quarter ended June 30, 2025, have rapidly increased usage and may optimize or fail to renew subscriptions.
In April 2025, Datadog notified customers of access by an unauthorized third party to a number of Datadog source code repositories arising from compromised employee account credentials. The filing says this unauthorized access may increase vulnerability to later attacks through exploitation of source code.
Operating income swung to a loss of $35.5 million in the three months ended June 30, 2025 from income of $12.6 million in the prior-year quarter, and net income decreased 94.0% to $2.6 million. Operating margin was negative 4.3% versus positive 2.0%.
Gross margin decreased to 79.9% for the three months ended June 30, 2025 from 80.9% in the prior-year quarter, and to 79.6% for the six months ended June 30, 2025 from 81.4%. MD&A attributes the decline primarily to increased spend with third-party cloud infrastructure providers.
Total stock-based compensation expense rose to $180.5 million for the three months ended June 30, 2025 from $134.7 million in the prior-year quarter, and MD&A attributes a $75.0 million increase in SBC for the six months to headcount growth. Competition for AI and machine learning engineers remains intense.
The 2025 Notes matured on June 15, 2025, and holders converted all outstanding principal; Datadog settled conversions with approximately $634.1 million in cash payments and issuance of about 1,354,569 Class A shares. The 2029 Notes include conditional conversion and capped call counterparty risks.
The filing cites significant uncertainty about trade policies, tariffs, fluctuating inflation and interest rates, and conflicts in Ukraine and the Middle East, which may cause customers to slow information technology spending.
The risk factors state that competitors may more successfully incorporate AI into their products and that AI technologies remain subject to evolving laws such as the EU AI Act, which imposes significant monetary fines.
SaaS KPIs
All quarters →Total Customers
Free Cash Flow
Non-GAAP Operating Margin
Free Cash Flow Margin
Dollar-Based Net Retention Rate
Customers > $100K ARR
Summary, forecast, risks and KPIs are extracted from Datadog, Inc.'s SEC filings for Q2 FY2025 (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.