Datadog Reports Strong Q2 Results Driven by AI Adoption, But Faces Potential Headwinds

Datadog forecasts upbeat third-quarter results on increased cloud security adoption

Aug 7 (Reuters) - Cloud security firm Datadog (DDOG.O), opens new tab forecast third-quarter revenue above Wall Street estimates on Thursday, signaling growing demand for its services as enterprises ramp up investment in artificial intelligence. Shares of the New York City-based company surged more than 10% in premarket trading. Businesses are accelerating the adoption of AI and cloud technologies, driving increased demand for Datadog's suite of products that monitor and secure cloud-based applications to ensure performance, reliability, and security of these systems. The company benefits from the broader migration to cloud infrastructure, which has created new requirements for real-time monitoring and analytics. Datadog's platform, used by clients including Samsung (000810.KS), opens new tab, NASDAQ (NDAQ.O), opens new tab and Comcast (CMCSA.O), opens new tab, enables organizations to monitor and analyze their digital operations, helping them to identify and resolve technical issues. The company said it showcased 125 new innovations to "help customers observe, secure, and act on their complex cloud environments and AI tech stacks." Datadog expects third-quarter revenue between $847 million and $851 million, above analysts' estimates of $819.9 million, according to data compiled by LSEG. The company expects adjusted profit per share between 44 cents and 46 cents, above estimates of 42 cents. For the second quarter, it posted revenue of $827 million, beating estimates of $791.1 million. On an adjusted basis, the company earned 46 cents per share compared with the estimates of 42 cents per share. Reporting by Kritika Lamba in Bengaluru; Editing by Shailesh Kuber and Harikrishnan Nair Our Standards: The Thomson Reuters Trust Principles., opens new tab

Why Is Datadog Stock falling On Friday - Datadog (NASDAQ:DDOG)

Wall Street analysts rerated Datadog DDOG after the company reported its quarterly results on Thursday. The stock traded lower on Friday. The software-as-a-service (SaaS) platform's fiscal second-quarter revenue increased 28% year-over-year to $826.76 million, beating the analyst consensus estimate of $790.97 million. Adjusted EPS of 46 cents beat the analyst consensus estimate of 42 cents. Also Read: Datadog Raises Full-Year Outlook After 125+ AI Feature Launches, But OpenAI Pullback Clouds Long-Term Growth Analyst Reaction Needham analyst Mike Cikos maintained a Buy on Datadog with a price forecast of $175. RBC Capital analyst Matthew Hedberg maintained an Outperform on Datadog with a price forecast of $165. Bank of America Securities analyst Koji Ikeda maintained a Buy on Datadog with a price forecast of $175. Needham Cikos said Datadog's second-quarter 2025 results beat expectations. Stronger-than-expected usage trends from existing customers and sustained momentum in its AI-Native cohort contributed 11% of total revenue and 10 percentage points to year-over-year growth. Enterprise usage growth remained steady, while SMB and mid-market usage improved from the prior quarter. Security surpassed $100 million in ARR, growing in the mid-40% range year-over-year. Datadog posted revenue of $826.8 million, up 28% year-over-year, above guidance and Street estimates. Adjusted operating income of $164.1 million exceeded forecasts, with an operating margin of 19.8%. EPS of $0.46 topped the $0.41 consensus. Gross margin improved to 80.9%, and large enterprise adoption continued, with eight of the top ten AI companies as customers. For third-quarter 2025, management guided revenue to $847-$851 million, operating income to $176-$180 million, and EPS to $0.44-$0.46. Full-year 2025 revenue guidance rose to $3.312-$3.322 billion, with operating profit of $684-$694 million and EPS of $1.80-$1.83. Cikos kept his price forecast, citing Datadog's industry-leading growth, expanding AI customer base, and strong ARR potential from new products. RBC Capital Hedberg said Datadog delivered a strong second-quarter 2025 with 28% revenue growth, accelerating from last quarter's 25% and beating estimates by 4.7%. AI-native customers rose to 11% of revenue from 8% last quarter, contributing 10 percentage points to growth, while core revenue grew 18%. Billings increased 26% year-over-year, with RPO up 35%. Enterprise usage trends were stable, SMB improved, and security ARR exceeded $100 million with mid-40% growth. Hedberg commented that management raised 2025 revenue guidance by $92 million, well above the second-quarter beat, implying 23.6% growth at the midpoint. Operating income guidance rose to $684-$694 million, with EPS projected at $1.80-$1.83. Third-quarter guidance calls for $847-$851 million in revenue, $176-$180 million in operating income, and EPS of $0.44-$0.46. While guidance reflects conservatism toward Datadog's largest AI-native customer after its fourth-quarter 2024 renewal, Hedberg said the cohort continues to expand, including over 80 customers spending $100K+ and 12 spending $1 million+. He rerated citing AI-native momentum, solid execution, and a strengthening salesforce. Bank of America Securities Ikeda said Datadog posted one of its strongest second-quarter beat-and-raise performances ever, with revenue of $826.7 million, up 28.1% year-over-year and 4.5% above consensus. Its adjusted operating income of 7.2% was higher than estimates. Management lifted 2025 revenue guidance by $92 million, which is $55 million above the second-quarter beat, showing strong monetization of growing cloud workloads, supporting long-term growth and healthy free cash flow. Ikeda noted sentiment is tempered by concerns that Datadog's largest AI-native customer, OpenAI, may reduce spending, potentially pressuring growth later this year or next. Still, he remains bullish, citing Datadog's leadership in observability and AI adoption. AI-native customers accounted for 11% of second-quarter revenue, up from 4% a year ago, implying ~250% year-over-year growth. The cohort includes more than a dozen spending over $1 million, over 80 spending $100K+, and eight of the top ten AI companies. Security ARR surpassed $100 million with mid-40% growth. Ikeda's rerating was supported by premium valuation and market leadership. Price Action: DDOG stock is down 4.00% at $130.98 as of the last check on Friday. Read Next: Analyst Cheers Disney's DTC Profits, Parks Strength, But Flags Capex, Linear TV Risks Photo: Shutterstock DDOGDatadog Inc$130.34-4.43%Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock RankingsEdge RankingsMomentum63.72Growth96.79QualityN/AValue6.68Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs

Datadog Raises Full-Year Outlook After 125+ AI Feature Launches, But OpenAI Pullback Clouds Long-Term Growth - Datadog (NASDAQ:DDOG)

Datadog DDOG reported its quarterly results on Thursday. The software-as-a-service (SaaS) platform's fiscal second-quarter revenue increased 28% year-over-year to $826.76 million, beating the analyst consensus estimate of $790.97 million. Adjusted EPS of 46 cents beat the analyst consensus estimate of 42 cents. Also Read: Datadog's S&P 500 Debut, AI Growth Spark Analyst Upgrade -- Is More Upside Ahead? As of June 30, Datadog had 3,850 customers with an ARR of $100,000 or more, an increase of 14% Y/Y. The adjusted gross margin declined by 100 bps to 81%, and the adjusted operating margin decreased by 400 bps to 20%. As of June 30, Datadog had cash and equivalents of $3.9 billion, generating $165 million in free cash flow. Co-founder and CEO Olivier Pomel noted that the company showcased its rapid pace of innovation at the DASH 2025 user conference by unveiling over 125 new features aimed at helping customers observe, secure, and act on their complex cloud environments and AI tech stacks. Outlook: Datadog expects third-quarter revenue of $847 million-$851 million, above the analyst consensus estimate of $819.47 million. It projects an adjusted EPS of $0.44-$0.46, compared to the analyst consensus estimate of $0.42. Datadog raised its fiscal 2025 revenue outlook to $3.312 billion to $3.322 billion (prior: $3.215 billion to $3.235 billion), exceeding the consensus estimate of $3.236 billion. It projects an adjusted EPS of $1.80-$1.83 (previously $1.67-$1.71), which is below the analyst consensus of $1.72. Datadog stock is down 4% year-to-date. On July 8, Guggenheim downgraded Datadog from Neutral to Sell and cut its price target to $105, citing expectations that OpenAI will reduce its use of Datadog's services in favor of cheaper, internally managed observability tools. The firm anticipates a sharp drop in annual recurring revenue from OpenAI, which could significantly weaken Datadog's AI-native revenue base. Despite projected strong second-quarter results, Guggenheim expects revenue momentum to fade in the second half of the year and sees only 15% growth in 2026, which is below consensus estimates. Price Action: DDOG stock is down 0.30% at $136.58 as of the last check on Thursday. Read Next: Nvidia, AI Bets Lift SoftBank To Profit After Brutal Year-Ago Loss Photo: Shutterstock DDOGDatadog Inc$135.37-1.16%Stock Score Locked: Want to See it? Benzinga Rankings give you vital metrics on any stock - anytime. Reveal Full ScoreEdge RankingsMomentum63.72Growth96.79QualityN/AValue6.68Price TrendShortMediumLongOverviewMarket News and Data brought to you by Benzinga APIs

Datadog (DDOG) Q2 Revenue Jumps 28%

Datadog (DDOG 1.24%), a cloud software company specializing in monitoring and analytics, released its results for the second quarter on August 7, 2025. GAAP revenue reached $827 million, a 28% year-over-year increase and about 4.5% above expectations of $791.12 million in GAAP revenue. Non-GAAP earnings per share (EPS) came in at $0.46, outpacing the consensus non-GAAP estimate of $0.41. The company's results show strong demand, especially among large enterprises, even as Growth rates have moderated compared to past hypergrowth periods, with revenue growth reported at 25% year-over-year in Q1 2025 and 28% in Q2 2025. Overall, Datadog delivered broad beats on key financial metrics, with non-GAAP EPS of $0.46 and GAAP revenue of $827 million, both exceeding analyst estimates, and raised its non-GAAP outlook for FY2025, indicating continued momentum in its business. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report. Business Overview and Strategic Focus Datadog provides cloud-based monitoring and analytics tools used by organizations to track and optimize the performance of their entire technology stack. Its services help companies identify and solve problems across infrastructure, applications, logs, and security, all through a single platform. Datadog's technology is deeply integrated into modern IT environments, making it a key enabler for digital transformation and cloud adoption. Recently, Datadog's focus has been on product innovation, expanding its platform, and scaling to meet the demands of global enterprise clients. Critical success factors include continuing to launch new features, growing large customer relationships, ensuring integration with other technologies, and capturing new markets outside the U.S. Quarterly Highlights and Performance Drivers GAAP revenue rose 28% year-over-year, beating analyst expectations by $35.88 million in GAAP revenue. Datadog's non-GAAP EPS reached $0.46, a 12.2% beat compared to the consensus estimate. Non-GAAP operating income edged higher to $164 million, while free cash flow, a measure of cash available after operating expenses and capital expenditures, improved to $165.4 million from $143.8 million in Q2 2024. The free cash flow margin stood at 20%, reflecting solid cash generation even as operating costs increased. Large customers remain an important part of Datadog's growth. The number of clients with annual recurring revenue (ARR) of more than $100,000 grew to about 3,850. This cohort includes organizations that rely on Datadog's broader suite of products, supported by its "land and expand" strategy that encourages wider use over time. Datadog continues to invest heavily in product development and innovation. At its DASH 2025 user conference, it announced over 125 new products and features -- including AI Agents (automation tools for site reliability, development, and security), enhanced log management products, and new AI observability capabilities for monitoring machine learning and generative AI workloads. The Internal Developer Portal, aimed at simplifying developer workflows using live observability data, was introduced as well. Management noted progress in extending its cloud coverage, including launching its platform in Amazon Web Services' Asia-Pacific (Sydney) region, broadening its global reach and supporting more customer requirements for local data residency. In addition, advances in on-premises monitoring and flexible deployment options position Datadog for further expansion in sectors with unique privacy or integration needs. Gross margin, which measures profit after direct costs, dipped slightly to 80% on a GAAP basis from 81% in Q2 2024. Management attributed the decline in gross margin to higher cloud hosting costs as it supported growth from large enterprise and AI-driven customers. Extending this, sales and marketing expenses (GAAP) rose 28% year over year. The company cited ongoing investment in both technology and go-to-market capabilities as reasons for higher spending. Datadog addressed potential volatility from its growing AI-native customer sector. While this segment drives fast growth, management noted some revenue concentration and the risk that these customers could adjust their usage based on business cycles or the need for cost optimization, a trend seen previously in other cohorts. Looking Ahead: Guidance and Key Watch Points Datadog raised its non-GAAP guidance for both Q3 and FY2025, reflecting continued business momentum. Management forecasted Q3 revenue between $847 million and $851 million. Non-GAAP EPS for Q3 was guided in the range of $0.44 to $0.46. For FY2025, anticipated revenue was upgraded to $3.312 billion to $3.322 billion, exceeding the prior range. Non-GAAP EPS was projected between $1.80 and $1.83 for FY2025. Investors and analysts will likely focus on several areas in the coming quarters. These include the pace of large enterprise adoption, growth in the AI-native customer segment, operating margin trends as investments in R&D and sales continue, and developments in international markets. Along with any shifts in customer concentration or spending optimization. Management continues to prioritize expansion and investment over shareholder payouts. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

1 Super Stock Down 32% to Buy Hand Over Fist in August, According to Wall Street | The Motley Fool

Artificial intelligence is starting to make a meaningful contribution to Datadog's revenue. Datadog (DDOG 0.09%) is a leader in cloud observability. Its platform monitors digital infrastructure around the clock, and immediately alerts businesses to technical glitches so they can be fixed before impacting customers. Whether a business operates in retail, entertainment, or even financial services, this is a critical tool in the digital age because the competition is always one click away. Last year, Datadog applied its expertise in cloud observability to launch a series of new tools for businesses using artificial intelligence (AI) applications. Based on the company's operating results for the second quarter of 2025, these new products are generating rapid growth. Datadog stock peaked in 2021, when a frenzy in the tech sector drove it to an unsustainable valuation. It's trading 32% below its record high as I write this, but the overwhelming majority of analysts tracked by The Wall Street Journal are extremely bullish on its prospects from here. Thirty-one of 46 rate it a buy. Datadog had around 31,400 customers at the end of the second quarter of 2025, which was a modest 8% increase from the year-ago period. However, 4,500 of those customers were using at least one of its AI products, a count that soared by a whopping 80%. One of those products is called LLM Observability, and it helps developers track costs, identify technical issues, and even evaluate the quality of the outputs from their large language models (LLMs). These models are at the foundation of consumer-facing AI software applications, and as they grow more complex, observability tools are becoming a necessity rather than an option. Datadog also offers a monitoring product for businesses using third-party LLMs from OpenAI, which is one of the industry's leading AI developers. It helps them track usage, costs, and error rates across their organization, giving them full visibility when deploying the GPT family of LLMs. Building a model from scratch requires significant financial resources and technical expertise, so more businesses are turning to third-party developers like OpenAI, which will create significant demand for this product over time. Datadog generated $827 million in total revenue during the second quarter of 2025, obliterating the high-end of management's guidance by $36 million. It represented a 28% increase year over year, which was an acceleration from the 25% growth the company delivered in the first quarter. AI-native customers accounted for 11% of Datadog's Q2 revenue, almost tripling from 4% in the year-ago period, which was a key reason for the solid performance. The Q2 result prompted management to increase its 2025 revenue forecast by $92 million, to $3.317 billion at the midpoint of its guidance range. Datadog also had another good quarter on the bottom line, with its adjusted (non-GAAP) net income growing by 7% year over year to $163.8 million. The company's operating costs surged by 36% during Q2, led by a sharp increase in research and development spending, which is why its adjusted profit grew at a much slower pace compared to its revenue. Datadog will have to spend aggressively if it wants to continue releasing new AI products, which could impact its bottom line for the foreseeable future. This won't be a problem if it leads to accelerating revenue growth over the long term, because it would create an opportunity to generate even higher profits. The Wall Street Journal tracks 46 analysts who cover Datadog stock, and 31 have given it a buy rating. Eight others are in the overweight (bullish) camp, while six recommend holding as I write this. Only one analyst recommends selling. The analysts have an average price target of $163.66, which implies a potential upside of 25% over the next 12 to 18 months. The Street-high target of $230 points to an even greater potential return of 75%, and while that seems ambitious in the short term, it's certainly on the table in the long run. Datadog stock is down 32% from its 2021 high, when a frenzy in the tech market -- fueled by pandemic-related stimulus -- drove its price-to-sales (P/S) ratio to an unsustainable level over 60. But the decline in the stock since then, combined with the company's rapid revenue growth, has pushed its P/S ratio down to 15.6. That's a 10% discount to its three-year average of 17.4 (which excludes the exuberant levels from 2021). Datadog looks like an attractive investment right now in August on that basis, and if the momentum in the company's AI revenue persists, the stock might even surpass $230 over the next few years.