Datadog’s third quarter was marked by broad-based customer adoption and significant expansion in both AI and non-AI segments, contributing to a positive market reaction. Management highlighted accelerating usage growth among existing customers, with CEO Olivier Pomel noting, “Sequential usage growth for non-AI existing customers was the highest we have seen going back 12 quarters.” The company recorded notable wins across large enterprises and saw its digital experience and security product suites gain traction. As a result, Datadog continued to demonstrate strong retention, with gross revenue retention stable in the mid- to high 90s, underscoring the platform’s mission-critical role for customers.
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Datadog (DDOG) Q3 CY2025 Highlights:
- Revenue: $885.7 million vs analyst estimates of $852.4 million (28.4% year-on-year growth, 3.9% beat)
- Adjusted EPS: $0.55 vs analyst estimates of $0.46 (20.3% beat)
- Adjusted Operating Income: $207.4 million vs analyst estimates of $179.4 million (23.4% margin, 15.6% beat)
- Revenue Guidance for Q4 CY2025 is $914 million at the midpoint, above analyst estimates of $885.7 million
- Management raised its full-year Adjusted EPS guidance to $2.01 at the midpoint, a 10.7% increase
- Operating Margin: -0.7%, down from 2.9% in the same quarter last year
- Customers: 4,060 customers paying more than $100,000 annually
- Annual Recurring Revenue: $3.72 billion vs analyst estimates of $3.53 billion (28.4% year-on-year growth, 5.5% beat)
- Billings: $892.6 million at quarter end, up 29.6% year on year
- Market Capitalization: $66.94 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Datadog’s Q3 Earnings Call
- Kasthuri Rangan (Goldman Sachs) asked about Datadog’s ability to monetize GPU workloads as AI compute grows. CEO Olivier Pomel clarified that GPU monitoring products are in early market stages and current revenues are not yet materially impacted by GPU-specific offerings.
- Sanjit Singh (Morgan Stanley) inquired about the drivers behind improved performance in non-AI enterprise segments. Pomel attributed gains to increased sales capacity, new go-to-market strategies, and adoption of newer products such as Flex Logs and analytics.
- Mark Murphy (JPMorgan) questioned the economics and structure of recent large AI customer contracts. Pomel explained that high-commitment contracts offer better unit pricing, with growth driven by increased usage rather than immediate price expansion.
- Eric Heath (KeyBanc) probed the revenue and competitive impact of Bits AI agents. Pomel discussed strong early customer feedback and the expectation that Bits AI will differentiate the platform and drive increased usage, though significant revenue contribution may materialize over time.
- Ittai Kidron (Oppenheimer & Co.) sought clarity on sales productivity and compensation changes. Pomel described ongoing adjustments to compensation plans to incentivize new customer acquisition and maintain strong productivity as sales capacity scales.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace of adoption and monetization for new AI observability products and Bits AI agents, (2) sustained momentum in security suite adoption, particularly Cloud SIEM and Flex Logs, and (3) execution on enterprise sales expansion and new logo bookings. Progress in integrating AI into core workflows and maintaining high customer retention will also be critical markers.
Datadog currently trades at $190.00, up from $154.98 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).
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