Datadog — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue for the third quarter ended September 30, 2026, was $1.20 billion, representing a 35% year-over-year increase.
• GAAP operating income was $75 million, with a GAAP operating margin of 6%.
• Non-GAAP operating income was $334 million, with a non-GAAP operating margin of 28%.
• GAAP net income per diluted share was $0.32; non-GAAP net income per diluted share was $0.81.
• Operating cash flow was $290 million, and free cash flow was $251 million.
• Cash, cash equivalents, and marketable securities totaled $5.2 billion as of September 30, 2026.
• For the nine months ended September 30, 2026, revenue was $3.32 billion compared to $2.47 billion in the prior year period.
• GAAP operating income for the nine months ended September 30, 2026, was $87 million, compared to a loss of $54 million in the prior year period.
• Non-GAAP operating income for the nine months ended September 30, 2026, was $815 million, compared to $538 million in the prior year period.

Guidance and Future Outlook:

• Fourth Quarter 2026 revenue is expected to be between $1.19 billion and $1.20 billion.
• Fourth Quarter 2026 non-GAAP operating income is expected to be between $280 million and $290 million.
• Fourth Quarter 2026 non-GAAP net income per share is expected to be between $0.69 and $0.71, assuming approximately 379 million weighted average diluted shares outstanding.
• Full Year 2026 revenue is expected to be between $4.515 billion and $4.525 billion.
• Full Year 2026 non-GAAP operating income is expected to be between $1.095 billion and $1.105 billion.
• Full Year 2026 non-GAAP net income per share is expected to be between $2.73 and $2.75, assuming approximately 375 million weighted average diluted shares outstanding.

Business Segments and Product Lines:

• The number of customers with Annual Recurring Revenue (ARR) of $100,000 or more reached approximately 4,860 as of September 30, 2026, an increase of 20% from approximately 4,060 a year ago.
• Scout 1.0, Datadog's first specialized AI model, was launched and now powers Bits Investigation, achieving frontier-model performance at a fraction of inference costs.
• Datadog received a Leader designation in the 2026 Forrester Wave for AIOps Platforms for the second consecutive year, scoring highest in eleven criteria including Innovation, Roadmap, and AI Governance.
• Datadog was recognized as the "Company to Beat" for observability platforms in Gartner's 2026 AI Vendor Race report.

Market and Competitive Landscape:

• The company is positioned as the leading AI-powered observability and security platform, trusted by Fortune 500 companies and high-growth AI leaders.
• Management highlighted strong adoption across the platform as customers scale digital operations and increase AI usage.
• The company operates in a competitive market, with Gartner's report assessing competitive positioning and market influence across the observability landscape.

Risks and Challenges:

• Risks include the possibility that recent rapid growth may not be indicative of future growth, dependence on existing customers for renewals and additional subscriptions, and the ability to attract new customers.
• Potential risks involve security breaches, product interruptions, adapting to rapidly changing technology, and competitive pressures.
• Regulatory risks include changing laws and regulations related to data privacy and security.
• General market risks include trade policies, tariffs, reduced economic growth, and decreases in IT spending.

Management Commentary and Tone:

• CEO Olivier Pomel stated the company delivered a strong third quarter with robust growth and significant cash flow generation.
• Management expressed confidence in rapid innovation, specifically regarding specialized AI models developed by the AI Research team to help customers manage complexity and move toward autonomous operations.
• The tone reflects confidence in the platform's ability to handle growing complexity and the market's demand for AI-driven observability.

Other Key Points:

• The company has convertible senior notes outstanding, including $747.5 million of 0.125% notes due 2025 and $1.0 billion of 0% notes due 2029.
• During the nine months ended September 30, 2026, the company repaid $635.5 million of 2025 Convertible Senior Notes.
• Cash paid for the acquisition of businesses, net of cash acquired, was $115.6 million for the nine months ended September 30, 2026.
• M&A transaction costs included in General and Administrative expenses were $3.8 million for the nine months ended September 30, 2026.
• The company does not reconcile non-GAAP operating income or non-GAAP net income per share to GAAP measures due to uncertainty regarding reconciling items like stock-based compensation and employer payroll taxes on equity incentive plans.