Datadog, Inc. (DDOG) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2026. Datadog, Inc. operates as an AI-powered observability and security platform for cloud applications. The company reported a conversion from a Delaware corporation to a Nevada corporation effective April 21, 2026. As of July 31, 2026, the company had approximately 359 million shares of Class A and Class B common stock outstanding.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Revenue | $1,121.5 million | $826.8 million | $2,127.9 million | $1,588.3 million |
| Gross Profit | $881.3 million | $660.8 million | $1,678.5 million | $1,264.7 million |
| Gross Margin | 79% | 80% | 79% | 80% |
| Operating Income | $5.5 million | ($35.5 million) | $12.8 million | ($47.9 million) |
| Net Income | $44.6 million | $2.6 million | $97.1 million | $27.3 million |
| Diluted EPS | $0.12 | $0.01 | $0.27 | $0.08 |
| Operating Cash Flow (YTD) | $650.5 million (2026) vs $471.6 million (2025) | |||
| Free Cash Flow (YTD) | $567.8 million (2026) vs $409.7 million (2025) | |||
| Cash & Marketable Securities | $5.0 billion (as of June 30, 2026) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 36% year-over-year for Q2 2026 and 34% for the six-month period. Approximately 70% of Q2 growth was driven by existing customers, while 30% came from new customers.
- Profitability: The company achieved operating income of $5.5 million in Q2 2026, a significant improvement from an operating loss of $35.5 million in the same period last year. Net income surged to $44.6 million from $2.6 million.
- Expense Increases: Operating expenses rose due to strategic investments. R&D expenses increased 23% (Q2) and 25% (YTD), primarily due to personnel costs and cloud infrastructure investments. Sales and marketing expenses increased 30% (Q2) and 30% (YTD).
- Acquisitions: During the first six months of 2026, the company completed three acquisitions with a total aggregate purchase price of $191.5 million, adding $178.7 million to goodwill.
- Debt: The company repaid its 2025 Convertible Senior Notes in the prior year. As of June 30, 2026, the company holds $1.0 billion in 2029 Convertible Senior Notes (0.00% interest).
Outlook, Risks, and Management Commentary
- Customer Metrics: As of June 30, 2026, the company had approximately 33,400 customers. The trailing 12-month dollar-based net retention rate was in the low-120% range, up from about 120% the prior year.
- Usage Trends: Management noted a reduction in usage from its largest customer starting in the third quarter of 2026, which may cause a deceleration in revenue growth. This customer is part of an "AI-native cohort" that had previously contributed high single-digit percentage points to growth.
- Tax Legislation: The company reflected the effects of the "One Big Beautiful Bill Act" (OBBBA) enacted in July 2025, which reduced forecasted U.S. income tax expense for 2026 by reversing the requirement to capitalize and amortize domestic R&E expenses.
- Risks: Key risks include macroeconomic uncertainty, potential reductions in IT spending, cybersecurity threats (including a source code repository access incident in April 2025), and the competitive landscape involving cloud providers and specialized vendors.
Investor Verification Checklist
- Verify the impact of the usage reduction from the largest customer on future revenue guidance and retention rates.
- Monitor the trajectory of gross margins given the 1% compression (79% vs 80%) driven by increased third-party cloud infrastructure costs.
- Review the integration progress and financial contribution of the three acquisitions completed in H1 2026 ($191.5M total cost).
- Assess the sustainability of operating profitability as the company continues to invest heavily in R&D and Sales & Marketing.
- Confirm the status of the 2029 Convertible Senior Notes and any potential dilution scenarios if conversion triggers are met.