Datadog revenue rose 35.6% to $1.12 billion and GAAP operating results turned to a $5.5 million profit, but usage cuts at its largest customer from Q3 leave Q3 guidance only 1%–2% above Q2.
Revenue
$1.1B
+35.6% YoY
Net income
$45M
+1583.3% YoY
Diluted EPS
$0.12
+1100.0% YoY
Operating margin
0.5%
Overview
Datadog sells cloud software that lets companies watch their servers, applications and AI systems in real time, and bills largely on how much customers use it. In the second quarter of 2026 (April–June) revenue rose 35.6% from a year earlier to $1,121.5 million, faster than the 32.2% growth of Q1 2026 ($1,006.4 million versus $761.6 million). Sequential growth, from Q1 to Q2, was 11.4%.
The same filing contains the main caveat. Datadog says it "saw a reduction in usage from our largest customer starting in the third quarter of 2026, which may cause a deceleration in revenue growth." Its Q3 revenue guidance of $1,135–1,145 million is only 1.2%–2.1% above Q2. Measured against Q3 2025 revenue of $885.7 million, it implies about 28%–29% year-over-year growth, a step down from 36%.
On a GAAP basis (the standard accounting rules), Datadog made a small operating profit of $5.5 million, compared with a $35.5 million operating loss a year earlier. Net income of $44.6 million came mostly from interest earned on its cash, not from operations.
Key metrics
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$1,121.5M
$826.8M
+35.6%
Gross margin
78.6%
79.9%
-1.3 pts
GAAP operating income (loss)
$5.5M
$(35.5)M
n/m (swung to profit)
GAAP operating margin
0.5%
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*Company-defined non-GAAP measures, taken from the Q2 2026 earnings release (8-K Exhibit 99.1, August 6, 2026). All other figures come from the 10-Q. The net income and EPS growth rates are mathematically correct but are measured against an almost-zero prior-year base, so they say little about how the business is trending.
Year to date (six months to June 30, 2026): revenue $2,127.9 million (+34.0%); GAAP operating income $12.8 million versus a $47.9 million loss; net income $97.1 million versus $27.3 million; diluted EPS $0.27 versus $0.08; free cash flow $567.8 million versus $409.7 million (+38.6%).
Takeaway: The quarter itself was strong: growth sped up to 36%, large customers grew 23%, and free cash flow rose 69%. But the same 10-Q says the largest customer began using less in Q3, and Q3 guidance is only about 1%–2% above Q2 after an 11% jump from Q1 to Q2. Q3 is set to show a clear slowdown, and the question for Q3 and Q4 is whether the rest of the customer base keeps growing fast enough to make up for one account.
Where the growth came from
Mostly existing customers spending more. Management attributes about 70% of the $294.7 million revenue increase to existing customers and 30% to new ones. Because Datadog bills on usage, a customer that sends more data or monitors more systems pays more without signing a new contract.
Net revenue retention (NRR). This measures how much a year-ago group of customers spends now compared with then, including customers who left or cut back. Trailing 12-month NRR was in the "low-120%s," up from about 120% a year ago. In plain terms, the same customers are spending a little over 20% more than a year earlier. The company credits "increased usage growth from existing customers."
Large accounts are growing faster than the customer count. Total customers grew 6.4% to about 33,400. Customers paying $100,000+ a year in ARR (annual run-rate revenue, a snapshot of current monthly revenue multiplied by 12) grew 22.6% to about 4,720 and now account for 91% of ARR, up from 89%.
Product breadth. About 58% of customers use four or more Datadog products (52% a year ago), and 13% use ten or more (7% a year ago).
The US grew faster than international. US revenue rose 41.2% to $790.1 million. Revenue from everywhere else rose about 24% to $331.4 million (our subtraction from the 10-Q's US figure). Outside North America, revenue was about 27% of the six-month total, down from 29%.
The largest-customer question
The 10-Q does not name the largest customer, give its share of revenue, or say how much its usage has fallen. It says only that usage fell "starting in the third quarter of 2026" (July onward, after the quarter ended) and that this "may cause a deceleration in revenue growth." That sentence is repeated in the NRR, quarterly and year-to-date revenue sections. The guidance shows the likely effect.
Guidance (from earnings release, Aug 6, 2026)
Q3 2026
Full-year 2026
Revenue
$1,135–1,145M
$4,450–4,470M
Non-GAAP operating income
$260–270M
$1,010–1,030M
Non-GAAP EPS
$0.63–0.65
$2.50–2.54
The full-year range is 29.8%–30.4% above 2025 revenue of $3,427.2 million. At the midpoints, the guidance implies Q4 revenue of about $1,192 million ($4,460M minus H1's $2,127.9M minus Q3's $1,140M, our arithmetic). That would be about 25% above Q4 2025 and about 4.6% above Q3: faster than Q3's roughly 1.7% sequential growth, but well below Q2's 11.4%. Because a large share of revenue is usage-based, the risk runs both ways: revenue can fall off quickly when one big user cuts back, and it can recover quickly if that customer or others increase usage.
A related detail: remaining performance obligations (contracted revenue not yet recognized) were $3,471.4 million at June 30, 2026, almost unchanged from $3,461.2 million at December 31, 2025, even though quarterly revenue grew 11% from Q1 to Q2. Datadog notes that the timing of revenue from its drawdown (prepaid-usage) contracts is uncertain, and it expects to recognize substantially all RPO within 24 months. This suggests recent growth has come more from usage than from new long-term commitments.
Gross margin fell to 78.6% from 79.9%. Cost of revenue rose 44.7%, faster than revenue. The 10-Q attributes this "primarily" to a $64.1 million increase in third-party cloud infrastructure hosting and software costs. Datadog runs on other companies' clouds, and processing more customer data costs more.
Operating expenses grew more slowly than revenue (+25.8% vs +35.6%). R&D was up 23% (+$62.5 million personnel, +$28.2 million cloud infrastructure and software), sales and marketing up 30% (+$56.6 million personnel, including more headcount and higher sales commissions), and G&A up 24%. That gap is why operating margin improved even though gross margin slipped.
GAAP vs non-GAAP: the stock-compensation gap
Datadog reported a $257.0 million "non-GAAP" operating profit but only $5.5 million under GAAP. Most of the $251.6 million gap is stock-based compensation: part of employee pay is in company shares instead of cash. It doesn't use cash, but it is a real cost to shareholders because new shares reduce each existing holder's percentage ownership. Q2 stock compensation was $220.3 million (19.6% of revenue, down from 21.8% a year earlier). The remainder was $27.6 million of employer payroll taxes on employee stock awards (up from $16.1 million, as this rises with the share price), $2.0 million of acquisition costs, and $1.7 million of amortization of acquired intangible assets. Diluted share count rose 3.4% year over year to 371.0 million.
Stock compensation is growing more slowly than revenue (+22.0% versus +35.6%), one reason GAAP operating margin turned positive. But nearly all GAAP profit still depends on interest income. Other income, net of $46.3 million accounted for almost 90% of $51.7 million pre-tax income. It is interest on $435.0 million of cash and $4.6 billion of marketable securities.
Cash flow and balance sheet
Operating cash flow was $315.9 million and free cash flow $278.7 million, a 24.9% free-cash-flow margin versus 20.0% a year earlier. Free cash flow is operating cash minus spending on equipment and capitalized software, both from the earnings release. The six-month figure was $567.8 million. Cash flow runs well above GAAP profit mainly because stock compensation is a non-cash expense. The company had $5.0 billion in cash and marketable securities against $1.0 billion of 0% convertible notes due 2029. In the first half it spent $191.5 million (cash, holdbacks and shares) on three small acquisitions it describes as immaterial, and the earnings release separately highlights the acquisition of AI startup Adaptive ML.
Outlook
The underlying trend through June was strong: growth sped up from Q1 to Q2, large customers kept expanding, and margins and cash flow improved. Q3 guidance, however, points to much slower sequential growth, and the only reason the filing gives is the largest customer's reduced usage. Full-year guidance still implies about 30% growth over 2025, but the Q3 print will show how much of that one account's reduction is already in the base and whether the rest of the business is still growing near the low-120%s NRR pace. Things to watch in the Q3 report: sequential revenue growth against the $1,135–1,145 million range, any quantification of the largest customer's share, the direction of NRR, and whether RPO starts growing again.