Summary
Datadog's third quarter revenue reached $270.5 million, up 74.9% from the prior-year quarter. For the first nine months of 2021, revenue was $702.6 million, up 65.0% year over year. The company reported a GAAP operating loss of $4.9 million, narrower than the prior-year quarter, and an operating margin of negative 1.8%, up 4.2 percentage points. GAAP net loss was $5.5 million, also narrower, and diluted EPS was negative $0.02. On a non-GAAP basis, operating income was $44.0 million, operating margin was 16%, and net income per diluted share was $0.13. Gross margin slipped to 76.6%, down 1.4 percentage points from the prior-year quarter, as cloud infrastructure costs rose. The nine-month picture was less favorable on the bottom line. GAAP operating loss for the year to date was $27.6 million, wider than the prior-year period. GAAP net loss was $27.9 million, also wider, and diluted EPS was negative $0.09. Year-to-date gross margin was 76.2%, down 2.8 percentage points, and operating margin was negative 3.9%, down 2.8 percentage points.
Customer metrics showed broad expansion. Datadog ended the quarter with 1,800 customers generating ARR of $100,000 or more, up 66% from 1,082 a year earlier. Total customers were approximately 17,500, compared with approximately 13,100 a year earlier. The dollar-based net retention rate remained above 130%. About 77% of customers used more than one product, up from approximately 71%. The company announced ten new products and features at its Dash user conference, including general availability for CI Visibility, Session Replay, Funnel Analysis, Network Device Monitoring, Datadog Apps, and Database Monitoring. Private betas included Cloud Cost Management, Observability Pipelines, Universal Service Monitoring, and Application Security. Datadog also introduced Online Archives for Log Management and official support for Vector. International revenue outside North America was approximately 28% of total revenue for the nine months, up from approximately 25%.
Cash generation remained a bright spot. Operating cash flow was $67.4 million in the quarter, up 85.8% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $57.1 million. For the nine months, operating cash flow was $170.8 million, up 100.3%, and free cash flow was $143.8 million. Capital expenditures were $3.3 million in the quarter, up 135.4%, and $7.6 million for the nine months, up 74.1%. Deferred revenue, current portion, was $300.95 million, up 83.5% from the prior-year quarter. Cash, cash equivalents, restricted cash, and marketable securities totaled $1.5 billion as of September 30, 2021.
Guidance points to continued growth. For the fourth quarter, Datadog guided revenue to $290 million to $292 million, non-GAAP operating income to $38 million to $40 million, and non-GAAP net income per share to $0.11 to $0.12. For the full year 2021, the company guided revenue to $993 million to $995 million, non-GAAP operating income to $133 million to $135 million, and non-GAAP net income per share to $0.39 to $0.40. Management noted that it has not reconciled these non-GAAP outlook figures to GAAP because of uncertainty around stock-based compensation and related payroll taxes. Risks include the company's history of operating losses, dependence on existing customers renewing and buying more, competition, potential security breaches, and the ongoing COVID-19 pandemic. Datadog also warned that international expansion may hurt near-term operating results and that gross margin can fluctuate with investments in third-party cloud infrastructure. The company typically sees a higher percentage of new customer bookings in the fourth quarter, which adds seasonality to the business.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $270.5M | $233.5M | +15.8% | $154.7M | +74.9% |
| Gross profit | $207.2M | $176.5M | +17.4% | $120.7M | +71.6% |
| Gross margin | 76.6% | 75.5% | +1.0 pp | 78.0% | -1.4 pp |
| Research & development | $112.7M | $94.8M | +18.9% | $56.4M | +99.6% |
| Sales & marketing | $75.8M | $70.4M | +7.7% | $57.1M | +32.7% |
| General & administrative | $23.5M | $21.1M | +11.4% | $16.4M | +43.8% |
| Total operating expenses | $212.1M | $186.3M | +13.8% | $130.0M | +63.2% |
| Operating income (loss) | -$4.9M | -$9.9M | +50.5% | -$9.3M | +47.2% |
| Operating margin | -1.8% | -4.2% | +2.4 pp | -6.0% | +4.2 pp |
| Net income (loss) | -$5.5M | -$9.4M | +41.4% | -$15.2M | +63.8% |
| Net margin | -2.0% | -4.0% | +2.0 pp | -9.8% | +7.8 pp |
| Diluted EPS | -$0.02 | -$0.03 | +$0.01 | — | — |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | 130.0% | ±0.0 pp |
Risks
Gross margin fell 1.4 percentage points in FY2021 Q3 versus FY2020 Q3 and 2.8 percentage points in FY2021 year to date versus FY2020 year to date, primarily from increased spend with third-party cloud infrastructure providers; failure to optimize cloud spend as the platform scales could continue to pressure gross margins.
Datadog outsources substantially all infrastructure to third-party hosting services, and any capacity limitation, service disruption or termination of those agreements could impede new customer onboarding and expansion, damage reputation and expose the company to liability under service-level commitments.
A July 2016 breach gave an unidentified third party unauthorized access to and exfiltration of data from certain infrastructure resources, including a database storing customer credentials; remote work has increased phishing risk, and ransomware and supply chain attacks are becoming more prevalent against cloud services.
Stringent and changing data privacy laws, including GDPR, the invalidated EU-U.S. Privacy Shield, new Standard Contractual Clauses, the ePrivacy Regulation and CCPA, could increase compliance costs, lengthen sales cycles and limit cross-border data transfers; inability to implement a valid transfer mechanism could decrease demand and expose Datadog to fines and injunctions.
The ongoing COVID-19 pandemic and new variant strains may continue to disrupt customer buying, industry events, travel and in-person sales, and could reduce customer spending; the filing notes that in the second quarter of 2020 Datadog experienced some impact to the rate of usage growth from existing customers.
Recent rapid growth may not be indicative of future growth, and Datadog expects its revenue growth rate to decline as the business matures; revenue rose 74.9% in FY2021 Q3 versus FY2020 Q3 and 65.0% in FY2021 year to date versus FY2020 year to date.
Datadog has a history of operating losses and may not achieve or sustain profitability; net loss widened to $(27.9) million in FY2021 year to date from $(8.4) million in FY2020 year to date, and operating loss widened to $(27.6) million from $(4.8) million over the same periods.
Datadog competes with larger diversified technology companies, APM vendors, log management providers and native cloud monitoring solutions from AWS, GCP and Microsoft Azure; pricing pressures and an increasing number of sales through cloud provider marketplaces could reduce direct customer relationships and profit margins.
Future success depends on existing customers purchasing additional subscriptions and renewing; customers have no obligation to renew, and larger enterprise customers may require more sophisticated and costly sales efforts. Dollar-based net retention was above 130% as of September 30, 2021 and 2020.
Datadog targets enterprise customers, which involves longer and more variable sales cycles, complex customer requirements, substantial upfront sales costs and less predictability in completing sales, with no guarantee that large customers will deploy products widely enough to justify the upfront investment.
Growth depends on key executive officers and other key employees in research and development and sales and marketing; competition for engineers and sales professionals is intense, and volatility in the perceived value of equity awards could impair recruitment and retention.
Revenue from regions outside North America was approximately 28% of total revenue for the nine months ended September 30, 2021, up from 25% for the nine months ended September 30, 2020; approximately 38% of full-time employees were outside the United States as of September 30, 2021, 40% of whom were in France, creating operational, tax, regulatory and currency risks.
Datadog issued $747.5 million aggregate principal amount of 2025 Notes and may not generate sufficient cash flow to service the debt; the conditional conversion feature could require cash settlement or reclassify the notes as a current liability, and capped call counterparties present default risk.
The dual class structure concentrates voting control with Class B holders, which represented approximately 69% of the voting power of outstanding capital stock as of September 30, 2021; this limits Class A stockholders' influence over important transactions and may cause index exclusion.
SaaS KPIs
All quarters →Total Customers
Free Cash Flow
Non-GAAP Operating Margin
Customers Using More Than One Product
Customers with ARR of $100,000 or more
Non-GAAP Gross Margin
Dollar-Based Net Retention Rate
Non-GAAP Operating Income
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 Q3 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 1, 2026.