Datadog, Inc. (DDOG) - Q1 2026 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2026. Datadog, Inc. operates an AI-powered observability and security platform for cloud applications. The company completed a conversion from a Delaware corporation to a Nevada corporation on April 21, 2026. As of the end of the period, the company had approximately 33,200 customers.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 | YoY Change |
|---|---|---|---|
| Revenue | $1,006.4 million | $761.6 million | +32% |
| Gross Profit | $797.2 million | $603.9 million | +32% |
| Gross Margin | 79% | 79% | Flat |
| Operating Income | $7.3 million | ($12.4 million) | Improvement |
| Net Income | $52.6 million | $24.6 million | +114% |
| Diluted EPS | $0.15 | $0.07 | +114% |
| Operating Cash Flow | $334.6 million | $271.5 million | +23% |
| Free Cash Flow | $289.1 million | $244.4 million | +18% |
| Cash & Marketable Securities | $4.76 billion | N/A | N/A |
| Convertible Debt (2029 Notes) | $984.5 million (net) | $983.4 million (net) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 32% increase, with approximately 75% attributable to existing customers and 25% to new customers.
- Profitability: The company returned to operating profitability ($7.3M) compared to an operating loss of $12.4M in Q1 2025. Net income more than doubled.
- Expense Increases: Operating expenses rose to $789.9M (from $616.3M), primarily due to increased headcount and stock-based compensation ($196.8M vs $164.3M).
- Customer Metrics: Dollar-based net retention rate improved to the low-120% range (from high-110% in Q1 2025). The number of customers with $100k+ ARR grew to 4,550 (from 3,770).
- Acquisitions: Completed two acquisitions in Q1 2026, adding $11.3M to goodwill. Total cash paid for acquisitions was $10.7M.
Outlook, Risks, and Commentary
- Management Commentary: Management highlighted strong expansion within the existing customer base and continued investment in R&D and sales to support growth. The company noted that gross margins remained flat as revenue growth matched infrastructure cost growth.
- Tax Legislation: The "One Big Beautiful Bill Act" (OBBBA) enacted in July 2025 reduced forecasted U.S. income tax expense for 2026 by reversing the requirement to capitalize R&E expenses.
- Key Risks:
- Macroeconomic Conditions: Potential reductions in IT spending due to global economic uncertainty, trade policies, and geopolitical conflicts.
- Competition: Intense competition from cloud providers (AWS, GCP, Azure) and specialized vendors.
- Security & Compliance: Risks related to data privacy regulations (GDPR, CCPA), AI governance, and potential cyber-attacks.
- Debt: The company has $1.0 billion in 0.00% Convertible Senior Notes due 2029, which may be converted to equity or cash depending on stock price performance.
- Guidance: The filing text does not provide specific numerical guidance for future quarters.
Investor Verification Checklist
- Verify the sustainability of the low-120% dollar-based net retention rate given the competitive landscape.
- Monitor the impact of the OBBBA tax legislation on future effective tax rates and net income.
- Assess the trajectory of stock-based compensation as a percentage of revenue, which remains a significant expense driver.
- Review the conversion terms of the 2029 Convertible Notes and potential dilution if the stock price triggers conversion.
- Track international revenue growth (28% of total) against currency fluctuation risks and regulatory compliance costs.