Datadog reported its second quarter on 6 August 2026, before the open. We are writing about it today.
Every figure here was verified against the Form 8-K filed with the SEC under Item 2.02, accession number 0001628280-26-053829. Even so, errors, inaccuracies or omissions are possible, and the figures may change after publication. Spotted something that looks wrong? Write to me and I will correct it.
What Datadog Sells
Datadog sells monitoring software. When a company runs its infrastructure in the cloud - servers, databases, services talking to each other - it needs something that shows it what is going on in there. What broke, what is slow, and what is costing too much money.
That is exactly what Datadog does. And as systems grow more complex, which in the AI era they are doing, the need for that layer grows with them.
The Quarter Was Good. Genuinely Good.
| The quarter | A year ago | |
|---|---|---|
| Revenue | $1.12 billion | +36% |
| Customers at $100k ARR or more | about 4,720 | about 3,850 |
| Operating cash flow | $316 million | |
| Free cash flow | $279 million | |
| Non-GAAP operating income | $257 million | 23% margin |
| Cash and marketable securities | $5.0 billion |
Growth of 36% at a company running above four billion dollars of annual revenue is impressive. Free cash flow of $279 million in a quarter is real. And adding about 870 large customers in a year says the business is not only growing but deepening.
CEO Olivier Pomel said in the release:
"Datadog delivered a strong quarter, with 36% year-over-year revenue growth, $316 million in operating cash flow, and $279 million in free cash flow"
And he is right. So why did the stock lose a fifth of its value?
The Answer Is in the Guide
For the third quarter Datadog expects revenue of $1.135 billion to $1.145 billion.
The company just closed a quarter at $1.12 billion. The midpoint of the guide is about $1.14 billion.
That is under two percent of sequential growth, at a company that just grew 36% in a year.
And one number makes it sharper still. Non-GAAP EPS guidance for the third quarter is $0.63 to $0.65. In the quarter just reported, non-GAAP EPS was $0.65. So the company is guiding to earnings per share somewhere between slightly down and flat. Not growth.
And this is exactly what we saw all week. SolarEdge crashed 30% after a good quarter. Taboola crashed 27% after raising guidance. In every case the quarter was fine and the guide was weaker than it.
And the Second Number Worth Knowing: Five Million Dollars
Datadog's GAAP operating income for the quarter was $5 million. On $1.12 billion of revenue. A zero percent margin.
On a non-GAAP basis operating income was $257 million, a 23% margin.
The gap between the two is about $252 million, and it is largely stock-based compensation.
Same story at the per-share level: $0.12 GAAP against $0.65 non-GAAP. Five and a half times.
What is stock-based compensation, and why does it matter? The company pays employees in shares instead of cash. In the GAAP accounts that is an expense; in the non-GAAP presentation it is added back. The case for adding it back is that no cash left the building. The case against is that new shares were issued, and every existing share is now worth slightly less. Both are true. Anyone looking only at the adjusted number is ignoring the dilution.
Full-Year Guidance
For the full year Datadog expects revenue of $4.45 billion to $4.47 billion, and non-GAAP operating income of $1.01 billion to $1.03 billion.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
Datadog did nothing wrong in this quarter, and that is precisely what makes it interesting.
It did not lose customers - it added 870 large ones in a year. It did not burn cash
- it generated $279 million of free cash flow. It did not actually slow down - it grew 36%.
It simply said the next quarter would look like this one. And that was enough to erase a fifth of its market value in a day.
What I take from this is about what a high multiple really represents. When a stock trades expensively, that price is not a bet that the company will earn money. It is a bet that it will keep accelerating. The moment the pace levels off, even at a high level, that bet stops holding.
This is the third lesson this week saying the same thing, and it is no longer coincidence. Anyone holding growth stocks through this earnings season needs to internalise it: the quarter being reported barely matters. What matters is what the company says about the next one.
And what I will be checking in Datadog's next quarter is not revenue - it is whether the GAAP operating margin starts to move off zero. A company growing 36% and earning nothing on a GAAP basis needs, at some point, to show that the growth reaches the bottom line too.
