Cloud monitoring software company Datadog (NASDAQ:DDOG) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 28.1% year on year to $826.8 million. On top of that, next quarter’s revenue guidance ($849 million at the midpoint) was surprisingly good and 3.7% above what analysts were expecting. Its non-GAAP profit of $0.57 per share was 39.8% above analysts’ consensus estimates.
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Datadog (DDOG) Q2 CY2025 Highlights:
- Revenue: $826.8 million vs analyst estimates of $791.2 million (28.1% year-on-year growth, 4.5% beat)
- Adjusted EPS: $0.57 vs analyst estimates of $0.41 (39.8% beat)
- Adjusted Operating Income: $164.1 million vs analyst estimates of $150.2 million (19.8% margin, 9.3% beat)
- The company lifted its revenue guidance for the full year to $3.32 billion at the midpoint from $3.23 billion, a 2.9% increase
- Management raised its full-year Adjusted EPS guidance to $1.82 at the midpoint, a 7.4% increase
- Operating Margin: -4.3%, down from 2% in the same quarter last year
- Free Cash Flow Margin: 20%, down from 32.1% in the previous quarter
- Customers: 3,850 customers paying more than $100,000 annually
- Billings: $847.8 million at quarter end, up 27.1% year on year
- Market Capitalization: $47.3 billion
Company Overview
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ:DDOG) is a software-as-a-service platform that makes it easier to monitor cloud infrastructure and applications.
Revenue Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Datadog grew its sales at an impressive 30.2% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
This quarter, Datadog reported robust year-on-year revenue growth of 28.1%, and its $826.8 million of revenue topped Wall Street estimates by 4.5%. Company management is currently guiding for a 23% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 16.7% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is commendable and indicates the market is forecasting success for its products and services.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Datadog’s billings punched in at $847.8 million in Q2, and over the last four quarters, its growth was impressive as it averaged 21.8% year-on-year increases. This alternate topline metric grew slower than total sales, meaning the company recognizes revenue faster than it collects cash - a headwind for its liquidity that could also signal a slowdown in future revenue growth. 
Enterprise Customer Base
This quarter, Datadog reported 3,850 enterprise customers paying more than $100,000 annually, an increase of 80 from the previous quarter. That’s a bit fewer contract wins than last quarter and quite a bit below what we’ve observed over the previous year, suggesting its sales momentum with new enterprise customers is slowing. It also implies that Datadog will likely need to upsell its existing large customers or move down market to maintain its top-line growth.
Key Takeaways from Datadog’s Q2 Results
We were impressed by Datadog’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its new large contract wins slowed. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 2.7% to $133.30 immediately after reporting.
Is Datadog an attractive investment opportunity right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.