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Datadog Q3 Earnings & Revenues Surpass Estimates, Both Rise Y/Y
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Key Takeaways
Datadog's Q3 EPS surged 47.3% to 81 cents, while revenues rose 35.2% to $1.2 billion, beating estimates.
DDOG's non-AI revenue growth accelerated for the fifth straight quarter, while its AI customers topped 850.
Datadog sees Q4 revenues of $1.19-$1.20 billion, based on its largest customer's minimum commitment.
Datadog, Inc. (DDOG - Free Report) reported non-GAAP earnings per share (EPS) of 81 cents for the third quarter of 2026, up 47.3% year over year. The figure surpassed the Zacks Consensus Estimate of 64 cents by 26.6%, supported by stronger operating profitability.
Revenues of $1.2 billion increased 35.2% year over year and beat the consensus estimate by 4.82%. The top line also exceeded management's $1.135-$1.145 billion guidance. Sequential growth moderated to 6.7% from 11.4% in the second quarter. Growth among non-AI customers accelerated, while Infrastructure Monitoring surpassed $2 billion in annual recurring revenue (ARR).
DDOG's Customer Base and Platform Depth
The company ended September with approximately 33,500 customers, up 4.7% from 32,000 a year earlier. Customers generating at least $100,000 in ARR increased 19.7% to about 4,860 from 4,060, accounting for 91% of total ARR versus 89% in the prior-year quarter.
Platform adoption deepened as 61% of customers used four or more products, compared with 54% a year earlier. The proportion using six or more products reached 41%, up from 31%, while those using at least 10 products doubled to 16%. Trailing 12-month net revenue retention remained in the low-120% range, up from about 120% a year earlier, with gross revenue retention in the mid-to-high 90s percent range.
DDOG served more than 850 AI customers, up from about 750 in the preceding quarter, including 39 spending over $1 million annually. Revenue growth among non-AI customers accelerated for the fifth consecutive quarter, reaching the high-20% range year over year. Management cited growing cloud usage and broader platform adoption across the customer base.
About one-third of customers now use at least one AI product, including three-quarters of those with $100,000 or more in ARR. Bits AI has become the company's fastest-adopted product, while its new Scout model powers automated incident investigations. The number of GPUs monitored rose eightfold so far this year, reflecting increased activity across AI infrastructure.
DDOG's Operating Profitability Expands in Q3
Non-GAAP gross profit grew 35.2% to $971.8 million, with gross margin at 81.2%, flat year over year but up from 79.6% in the second quarter.
Non-GAAP operating expenses increased 24.6% to $637.5 million, slower than revenue growth.
Non-GAAP research and development expenses rose 23.1% to $331.7 million. Sales and marketing expenses grew 28.4% to $251.1 million, while general and administrative costs increased 17.8% to $54.7 million.
Non-GAAP operating income was up 61.2% to $334.3 million, with operating margin expanding to 27.9% from 23.4% a year earlier.
Datadog's Q3 Cash Flow and Contract Metrics
Operating cash flow increased 15.3% year over year to $289.9 million. Free cash flow rose 17.1% to $250.6 million, although its margin narrowed to 21% from 24%. Datadog ended the quarter with $5.2 billion in cash, cash equivalents and marketable securities.
Billings grew 30% to $1.16 billion. Remaining performance obligations, representing contracted revenue not yet recognized, climbed 38% to $3.85 billion, while current obligations increased in the mid-30% range. Management maintained that reported revenues are a better indicator of underlying trends than billings or remaining obligations.
DDOG's Major Deals and Customer Headwinds
Datadog secured an eight-figure annualized expansion with the AI division of a major technology company, nearly tripling that customer's commitment. It also landed a five-year, seven-figure annualized deal with a U.S. federal defense agency and seven-figure agreements with two Japanese banks, expanding its enterprise and public-sector reach.
Its largest customer reduced usage during the quarter but spent above its contractual minimum. Several other large customers, including AI accounts, renewed early at higher commitments and better volume pricing, creating near-term revenue headwinds. Meanwhile, new customers contributed about 30% of year-over-year revenue growth, up from 25% a year earlier.
Datadog's Q4 & 2026 Outlook
For the fourth quarter of 2026, Datadog expects revenues of $1.19-$1.20 billion, representing 25%-26% growth year over year. Non-GAAP operating income is projected at $280-$290 million, with non-GAAP EPS of 69-71 cents. The guidance assumes revenues from its largest customer at the minimum commitment.
For full-year 2026, the company forecasts revenues of $4.515-$4.525 billion, approximately 32% growth. Non-GAAP operating income is expected at $1.095-$1.105 billion, with non-GAAP EPS of $2.73-$2.75. Excluding its largest customer, fourth-quarter guidance implies revenue growth in the low-to-mid-30% range.
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Datadog Q3 Earnings & Revenues Surpass Estimates, Both Rise Y/Y
Key Takeaways
Datadog, Inc. (DDOG - Free Report) reported non-GAAP earnings per share (EPS) of 81 cents for the third quarter of 2026, up 47.3% year over year. The figure surpassed the Zacks Consensus Estimate of 64 cents by 26.6%, supported by stronger operating profitability.
Revenues of $1.2 billion increased 35.2% year over year and beat the consensus estimate by 4.82%. The top line also exceeded management's $1.135-$1.145 billion guidance. Sequential growth moderated to 6.7% from 11.4% in the second quarter. Growth among non-AI customers accelerated, while Infrastructure Monitoring surpassed $2 billion in annual recurring revenue (ARR).
DDOG's Customer Base and Platform Depth
The company ended September with approximately 33,500 customers, up 4.7% from 32,000 a year earlier. Customers generating at least $100,000 in ARR increased 19.7% to about 4,860 from 4,060, accounting for 91% of total ARR versus 89% in the prior-year quarter.
Platform adoption deepened as 61% of customers used four or more products, compared with 54% a year earlier. The proportion using six or more products reached 41%, up from 31%, while those using at least 10 products doubled to 16%. Trailing 12-month net revenue retention remained in the low-120% range, up from about 120% a year earlier, with gross revenue retention in the mid-to-high 90s percent range.
Datadog, Inc. Price, Consensus and EPS Surprise
Datadog, Inc. price-consensus-eps-surprise-chart | Datadog, Inc. Quote
Datadog's AI Footprint Broadens
DDOG served more than 850 AI customers, up from about 750 in the preceding quarter, including 39 spending over $1 million annually. Revenue growth among non-AI customers accelerated for the fifth consecutive quarter, reaching the high-20% range year over year. Management cited growing cloud usage and broader platform adoption across the customer base.
About one-third of customers now use at least one AI product, including three-quarters of those with $100,000 or more in ARR. Bits AI has become the company's fastest-adopted product, while its new Scout model powers automated incident investigations. The number of GPUs monitored rose eightfold so far this year, reflecting increased activity across AI infrastructure.
DDOG's Operating Profitability Expands in Q3
Non-GAAP gross profit grew 35.2% to $971.8 million, with gross margin at 81.2%, flat year over year but up from 79.6% in the second quarter.
Non-GAAP operating expenses increased 24.6% to $637.5 million, slower than revenue growth.
Non-GAAP research and development expenses rose 23.1% to $331.7 million. Sales and marketing expenses grew 28.4% to $251.1 million, while general and administrative costs increased 17.8% to $54.7 million.
Non-GAAP operating income was up 61.2% to $334.3 million, with operating margin expanding to 27.9% from 23.4% a year earlier.
Datadog's Q3 Cash Flow and Contract Metrics
Operating cash flow increased 15.3% year over year to $289.9 million. Free cash flow rose 17.1% to $250.6 million, although its margin narrowed to 21% from 24%. Datadog ended the quarter with $5.2 billion in cash, cash equivalents and marketable securities.
Billings grew 30% to $1.16 billion. Remaining performance obligations, representing contracted revenue not yet recognized, climbed 38% to $3.85 billion, while current obligations increased in the mid-30% range. Management maintained that reported revenues are a better indicator of underlying trends than billings or remaining obligations.
DDOG's Major Deals and Customer Headwinds
Datadog secured an eight-figure annualized expansion with the AI division of a major technology company, nearly tripling that customer's commitment. It also landed a five-year, seven-figure annualized deal with a U.S. federal defense agency and seven-figure agreements with two Japanese banks, expanding its enterprise and public-sector reach.
Its largest customer reduced usage during the quarter but spent above its contractual minimum. Several other large customers, including AI accounts, renewed early at higher commitments and better volume pricing, creating near-term revenue headwinds. Meanwhile, new customers contributed about 30% of year-over-year revenue growth, up from 25% a year earlier.
Datadog's Q4 & 2026 Outlook
For the fourth quarter of 2026, Datadog expects revenues of $1.19-$1.20 billion, representing 25%-26% growth year over year. Non-GAAP operating income is projected at $280-$290 million, with non-GAAP EPS of 69-71 cents. The guidance assumes revenues from its largest customer at the minimum commitment.
For full-year 2026, the company forecasts revenues of $4.515-$4.525 billion, approximately 32% growth. Non-GAAP operating income is expected at $1.095-$1.105 billion, with non-GAAP EPS of $2.73-$2.75. Excluding its largest customer, fourth-quarter guidance implies revenue growth in the low-to-mid-30% range.
DDOG’s Zacks Rank & Stocks to Consider
Datadog currently carries a Zacks Rank #3 (Hold).
Analog Devices (ADI - Free Report) , Braze (BRZE - Free Report) and NVIDIA Corporation (NVDA - Free Report) are among the better-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector. Currently, Analog Devices, Braze and NVIDIA carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Analog Devices’ shares have jumped 49.8% year to date. ADI is scheduled to report its fourth-quarter fiscal 2026 results on Nov. 24.
Braze’s shares have gained 34.3% year to date. BRZE is slated to report its third-quarter fiscal 2027 results on Dec. 8, 2026.
NVIDIA’s shares have returned 8.1% year to date. NVDA is set to report its third-quarter fiscal 2027 results on Nov. 17, 2026.