Datadog, Inc. Q2 FY2026 earnings

Datadog reported second quarter fiscal 2026 revenue of $1.12 billion, up 35.6% year over year. Year-to-date revenue was $2.13 billion, up 34.0%. Gross profit was $881.34 million, up 33.4%, while gross margin slipped 1.3 percentage points to 78.6%. The company swung to GAAP operating income of $5.46 million from a loss in the prior-year quarter, and operating margin was 0.5%, up 4.8 percentage points. Net income was $44.56 million, up 1583.3%, and diluted EPS was $0.12, up 1100.0%. On a non-GAAP basis, operating income was $257 million, operating margin was 23%, and diluted EPS was $0.65. The gap between GAAP and non-GAAP results remains wide, largely because of stock-based compensation and related payroll taxes.

Customer metrics show continued expansion. As of June 30, 2026, Datadog had about 4,720 customers with ARR of $100,000 or more, up 23% from about 3,850 a year earlier. Those customers represented 91% of ARR, up from 89%. Total customers were about 33,400, compared with about 31,400 a year earlier. The trailing 12-month dollar-based net retention rate was in the low-120%'s, compared with about 120%. Product adoption also deepened: approximately 85% of customers used two or more products, up from 83%; 58% used four or more, up from 52%; 37% used six or more, up from 29%; 22% used eight or more, up from 14%; and 13% used ten or more, up from 7%. The company acquired Adaptive ML and launched more than 100 new capabilities at DASH 2026, including AI-powered Bits Code, Bits Chat, and Bits Agent Builder for general availability. Gartner named Datadog a Leader in the 2026 Magic Quadrant for Observability Platforms for the sixth consecutive year.

Cash generation improved. Operating cash flow was $315.87 million in the second quarter, up 57.9% year over year. Year-to-date operating cash flow was $650.50 million, up 37.9%. Free cash flow, a non-GAAP measure, was $279 million in the quarter and $567.8 million year to date. Free cash flow margin was 25% for the quarter. Capital expenditures were $9.89 million in the quarter, down 34.7%, and $21.25 million year to date, down 11.1%. Deferred revenue, current portion, was $1.29 billion, up 33.1%. Remaining performance obligations were $3.47 billion, up 43.1%.

Management issued guidance for the third quarter of 2026 and for the full year 2026. The third quarter outlook includes non-GAAP operating income of $260 million to $270 million and non-GAAP net income per share of $0.63 to $0.65, based on approximately 378 million weighted average diluted shares. The full year 2026 outlook includes non-GAAP operating income of $1.01 billion to $1.03 billion and non-GAAP net income per share of $2.50 to $2.54, based on approximately 376 million weighted average diluted shares. The company also gave revenue ranges for both periods. Datadog does not reconcile these non-GAAP expectations to GAAP because of uncertainty around items such as stock-based compensation and employer payroll taxes on equity incentive plans.

The main risk is a reduction in usage from the largest customer starting in the third quarter of 2026, which may cause a deceleration in revenue growth. Macroeconomic uncertainty also matters. The company cites trade wars, tariffs, other trade restrictions, fluctuating inflation and interest rates, and the conflicts in Ukraine and the Middle East as factors that could lead businesses to slow information technology spending. Other named risks include dependence on existing customers purchasing additional subscriptions and renewing, the ability to attract new customers, security breaches, interruptions or performance problems, competition, changing data privacy and security laws, and general market and business conditions. Datadog also notes its history of operating losses and limited operating history. The quarter was strong, but these risks frame the outlook.