Datadog, Inc. Q3 FY2025 earnings call

• Business drivers: Broad-based positive demand with cloud migration and digital transformation. Strong revenue growth in non-AI and AI native customers, with new customer contribution increasing. Churn low with gross revenue retention in mid- to high 90s.
• Financial performance: Revenue $886M, up 28% YOY. Ended Q3 with ~32,000 customers. Free cash flow $214M with 24% margin.
• Customer adoption: 84% of customers use 2+ products, up from 83% a year ago. 54% use 4+ products, up from 49% a year ago, etc.
• AI product advancements: Bits AI agents with high customer interest, LLM observability launches, and Datadog MCP server adoption.
• Sales and marketing: Strong new logo wins and expansions, including large deals with leading companies in various industries.

Revenue for Q3 was $886 million, a 28% year-over-year increase and above guidance. Ended Q3 with about 32,000 customers, up from 29,200 a year ago. 84% of customers used 2 or more products, 54% used 4 or more, 31% used 6 or more, and 16% used 8 or more. Security ARR growth was in the mid-50s year-over-year in Q3. AI native customers had strong and accelerating growth, with over 500 AI native companies in the group, 100 spending over $100,000 annually, and 15 spending over $1 million annually.

• Q4 2025: Revenue expected $912M - $916M (24% YOY), non-GAAP operating income $216M - $220M (24% margin), non-GAAP net income per share $0.54 - $0.56.
• FY2025: Revenue expected $3.386B - $3.390B (26% YOY), non-GAAP operating income $754M - $758M (22% margin), non-GAAP net income per share $2 - $2.02.

Q: Kash Rangan of Goldman Sachs asked about GPU monetization.

A: Olivier Pomel said products for GPU monitoring are in market but not generating significant revenue yet.

Q: Sanjit Singh of Morgan Stanley asked about enterprise trends in non-AI cohort.

A: Olivier Pomel said it's due to positive demand environment, sales capacity growth, and successful new products.

Q: Raimo Lenschow of Barclays asked about AI customers.

A: Olivier Pomel said AI customers are broad, including model builders, coding assistants, etc.

Q: Mark Murphy of JPMorgan asked about expansion of contract with largest AI native customer.

A: Olivier Pomel said it's typical with customers growing, committing more, and getting better prices.

Q: Fatima Boolani of Citi asked about On-Call product and net retention rates.

A: Olivier Pomel discussed AI advancements enhancing On-Call, and David Obstler said net retention is trailing 12-month metric.

Q: Eric Heath of KeyBanc asked about Bits AI.

A: Olivier Pomel said Bits AI is exciting, resonating well, and they're doubling down on development.

Q: Gray Powell of BTIG asked about surprise in growth and sustainability.

A: Olivier Pomel said AI adoption and go-to-market changes surprised, and David Obstler said good demand and investments are driving it.

Q: Koji Ikeda of Bank of America Securities asked about non-AI native growth durability.

A: Olivier Pomel said it's broad-based due to good demand, product investment, and go-to-market execution.

Q: Ittai Kidron of Oppenheimer & Co. asked about sales capacity and comp structure.

A: Olivier Pomel discussed sales productivity, comp plan tweaks for focus on long-term growth.

Q: Andrew Sherman of TD Cowen asked about Fortune 500 team ramping.

A: Olivier Pomel said team is tracking well, focusing on landing new customers.

Q: Alex Zukin of Wolfe Research asked about non-AI acceleration duration and gross margins.

A: Olivier Pomel said confident in midterm, and David Obstler said gross margin range is consistent.

Q: Ryan MacWilliams of Wells Fargo asked about large AI contract contribution.

A: David Obstler said they don't provide individual customer contribution guidance.

Q: Michael Cikos of Needham asked about non-AI native strength why now.

A: Olivier Pomel said it's usual growth pattern. David Obstler discussed holiday season impact on guidance.

Q: Karl Keirstead of UBS asked about AI native contracts and Oracle OCI.

A: David Obstler discussed typical contract motion, and Olivier Pomel said plugged into customer needs with OCI integrations.

Q: Jake Roberge of William Blair asked about go-to-market investments and Bits AI feedback.

A: Olivier Pomel said leaning into successful areas, and Bits AI has positive early feedback with customers seeing time savings.