Summary
Datadog's third quarter revenue rose 25.4% from a year earlier to $547.5 million. Gross profit increased 29.5% to $444.2 million, and gross margin expanded by 2.6 percentage points to 81.1%. The company posted a GAAP operating loss of $4.2 million. Its GAAP operating margin improved by 6.4 percentage points to -0.8%. GAAP net income was $22.6 million, compared with a loss a year earlier. Diluted EPS was $0.06. On a non-GAAP basis, operating income was $130.8 million, operating margin was 24%, and diluted EPS was $0.45.
Cash generation was strong. Operating cash flow was $152.8 million, up 82.7% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $138.2 million. Capital expenditures were $6.1 million, down 37.0%. Current deferred revenue reached $636.5 million, up 33.0%. Remaining performance obligations were $1.45 billion, up 53.7%. Management said about 65% of the revenue increase came from existing customers and the remaining 35% from new customers. For the first nine months, revenue rose 27.6% to $1.54 billion. Gross profit rose 29.1% to $1.23 billion. The operating loss widened to $61.2 million. The net loss narrowed to $5.4 million, and diluted EPS was -$0.02. Operating cash flow for the same period was $439.7 million, up 44.7%, and capital expenditures were $17.2 million, down 31.8%.
Customer expansion remained a key part of the story. Datadog ended the quarter with about 3,130 customers generating $100,000 or more in annual run-rate revenue, up from about 2,600 a year earlier. Total customers were approximately 26,800, compared with approximately 22,200 a year earlier. Product adoption also broadened. About 82% of customers used more than one product, up from about 80% a year earlier. About 46% used more than four products, up from about 40%, and about 21% used more than six products, up from about 16%. The trailing 12-month dollar-based net retention rate was slightly below 120%, down from above 130% a year earlier. Management attributed the decline to decelerating growth and slower usage growth from existing customers. Datadog also released its fifth annual container report and its annual State of Serverless report during the quarter.
Guidance points to continued growth but also to near-term pressure. For the fourth quarter, Datadog expects revenue of $564 million to $568 million, non-GAAP operating income of $129 million to $133 million, and non-GAAP net income per share of $0.42 to $0.44. For the full year 2023, the company expects revenue of $2.103 billion to $2.107 billion, non-GAAP operating income of $453 million to $457 million, and non-GAAP net income per share of $1.52 to $1.54. The company has not reconciled these non-GAAP outlook figures to GAAP because of uncertainty around stock-based compensation and related payroll taxes. Risks include macroeconomic uncertainty, slower spending on information technology, a competitive market, security breaches, and the company's history of operating losses. The net retention rate decline and slower usage growth from existing customers are the main operating risks to watch.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $547.5M | $509.5M | +7.5% | $436.5M | +25.4% |
| Gross profit | $444.2M | $407.6M | +9.0% | $342.9M | +29.5% |
| Gross margin | 81.1% | 80.0% | +1.1 pp | 78.6% | +2.6 pp |
| Research & development | $240.2M | $239.5M | +0.3% | $205.4M | +17.0% |
| Sales & marketing | $156.9M | $147.5M | +6.4% | $129.5M | +21.1% |
| General & administrative | $51.4M | $42.7M | +20.3% | $39.4M | +30.4% |
| Total operating expenses | $448.4M | $429.6M | +4.4% | $374.3M | +19.8% |
| Operating income (loss) | -$4.2M | -$22.0M | +80.8% | -$31.3M | +86.5% |
| Operating margin | -0.8% | -4.3% | +3.6 pp | -7.2% | +6.4 pp |
| Net income (loss) | $22.6M | -$4.0M | +670.2% | -$26.0M | +187.1% |
| Net margin | 4.1% | -0.8% | +4.9 pp | -6.0% | +10.1 pp |
| Diluted EPS | $0.06 | -$0.01 | +$0.07 | -$0.08 | +$0.14 |
| Net retention rate | 120.0% | 120.0% | ±0.0 pp | 130.0% | -10.0 pp |
Risks
MD&A states that in recent quarters Datadog has seen slower usage growth from existing customers, which may be related to the uncertain macroeconomic environment, including rising inflation, higher interest rates, and geopolitical conflicts. It also reports revenue up 25.4% for the three months ended September 30, 2023 and up 27.6% for the nine months ended September 30, 2023, but expects the revenue growth rate to decline as the business matures.
MD&A reports that the trailing 12-month dollar-based net retention rate was slightly below 120% as of September 30, 2023, down from above 130% as of September 30, 2022, and attributes the decline to decelerating business growth. The risk factors note customers have no obligation to renew and that failure to renew or expand subscriptions would harm future operating results.
The filing states that some products use AI and machine learning, that Datadog is investing to expand AI capabilities, and that AI technologies are complex, rapidly evolving, and subject to uncertain market acceptance. It warns that failure to keep pace with technological change could make products less competitive.
Datadog targets enterprise customers, and the filing warns that these sales involve longer and more variable sales cycles, more complex requirements, substantial upfront costs, and less predictability. It notes enterprise customers may deploy on a limited basis without guaranteeing broad deployment sufficient to justify the upfront investment.
The risk factors disclose that in March 2023 the Datadog platform experienced widespread outages across multiple products and regions, which were substantially resolved in approximately a day. It warns that future interruptions or performance problems could cause customer losses, delayed payments, and reputational harm.
The filing references a July 2016 incident in which an unidentified third party gained unauthorized access to and exfiltrated data from certain infrastructure resources, including a database storing customer credentials. It states that ransomware, supply chain attacks, and other security incidents could lead to liabilities, remediation costs, and reduced demand.
Datadog outsources substantially all infrastructure for its cloud solution to third-party hosting services, and the filing warns that capacity limitations, service terminations, or disruptions could impede customer onboarding and expansion. It also warns that any failure in optimizing spend on third-party cloud services as Datadog scales could negatively impact gross margins.
The filing describes a complex and evolving global privacy and data-transfer regime, including the EU GDPR, cross-border transfer mechanisms such as the EU SCCs, and U.S. state laws like the CCPA and CPRA. It warns that non-compliance could lead to fines, injunctions against processing personal information, and significant compliance costs.
The risk factors state that the conditional conversion feature of the 2025 Notes may require Datadog to settle conversion obligations in cash or reclassify the notes as a current liability, which could reduce net working capital. They also note counterparty risk on capped call transactions.
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
Summary, forecast, risks and KPIs are extracted from Datadog, Inc.'s SEC filings for Q3 FY2023 (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.