Datadog Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Congratulations on a great performance. Olivier, we noticed the CEO of Anthropic recently said that within 12- to 18 months, that AI is going to be writing 100% of all code. I'm sure there's a bit of hyperbole there, but directionally it's intriguing. Can you comment on the opportunity that might open up for Datadog if that sheer volume of applications being put into production starts to rise because AI writes so much code so rapidly? And just does that AI generated could require more or less monitoring than human written code? And then I have a quick follow-up for David.

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Okay. Very interesting. And then David, it's just amazing the booking stats, so impressive. 11 deals over $10 million, only one a year ago. And then these big AI numbers, the combination there, it's just incredible. What do you attribute that level of booking strengths? Two, it's a quarter where you had the specter of a trade war and it seemed like it was weighing on business confidence. So I'm wondering if you can comment on the booking strength. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 06, 2025 / 12:00PM, DDOG.OQ - Q1 2025 Datadog Inc Earnings Call

Question: Sanjit Singh - Morgan Stanley & Co. LLC - Analyst : I wanted to pick up where Mark left off, and as we talk about kind of the core drivers to transformation and cloud migrations. What are the trend lines on the cloud migration side? It seems to -- based on your comment, Oli, it sounds like that's likely or could actually pick up potentially going into a lower economic environment. So in terms of just what we've seen through the early part of the year, what are the trend lines on core cloud migration?

Question: Sanjit Singh - Morgan Stanley & Co. LLC - Analyst : Awesome. I want to talk a little bit about some of the expansion -- additional expansion opportunities into data observability. I mean that's been a space that's been talked about sort of buzzy the last couple of years. I'm not sure it's gotten super big just yet. Maybe just some of the -- what the vision is about moving into data observability and how consequential an opportunity it could be for Datadog? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 06, 2025 / 12:00PM, DDOG.OQ - Q1 2025 Datadog Inc Earnings Call

Question: Raimo Lenschow - Barclays Bank PLC - Analyst : Congrats from me as well. Two quick questions, actually more for David this time. David, if you think about the guidance, I know you've been, you've always been a conservative team. You raised it more than the Q1 beat, so obviously, you're kind of seeing good trends in Q2 there as well. What was the thinking process in terms of kind of showing us that upside that you kind of might expect in Q2, versus kind of buffering that and just kind of given the uncertain environment? It's the first question. Second question is on the gross margin change for the full year guidance. Can you just remind us, like, obviously, that's three months after you guided the first time. Can you remind us a little bit like what you saw there and how -- what's the action that you're taking there to kind of change that?

Question: Kasthuri Rangan - Goldman Sachs Group, Inc. - Analyst : Oli, one for you and one for you, David. Oli, when you look at the AI market, certainly, it looks like we're about to move from training into inference. Where does that leave Datadog from a product perspective where you can add more consistent value without being optimized? And one for you, David, as you look at the stepped-up research development, sales and marketing investments, how from a financial perspective are we to see the incremental benefit of those income investments?

Question: Jacob Roberge - William Blair & Company L.L.C. - Analyst : Could you talk a little bit more what you're seeing with the AI native cohort? It sounds like growth remains solid in that segment, but still some potential for optimization there. So could you talk about what you're seeing from some of those AI native contracts that have already come up for renewal and just how those conversations have been trending?

Question: Jacob Roberge - William Blair & Company L.L.C. - Analyst : Okay. That's helpful. And then great to see the strong ramp in Flex Logs over the past year. Can you talk a little bit more about what you're seeing in the log management specifically? We've definitely been hearing about some more disruption at the start of the year from the recent acquisitions in the space. So just curious if you're seeing an even more meaningful opportunity on that front this year?

Question: Gregg Moskowitz - Mizuho Securities USA - Analyst : I have two. I'll just ask them concurrently. First, the AI native cohorts, getting back to that, so the percentage of total ARR coming from this cohort rose really impressively. Just so that we have a little better understanding of this dynamic because Oli just mentioned or referenced customer concentration. Can you say if the increase from a percentage basis was driven by perhaps one or two of these larger customers? Or is it broader based than that? And then secondly, for David, just given the second half step-up in sales and marketing investment that we saw last year at Datadog that seem to have continued into 2025, how is your productivity tracking at this stage compared to your expectations?

Question: Brent Thill - Jefferies Financial Group Inc. - Analyst : David, on the 25% to 30% for sales capacity that you're seeing now, is that what you're continuing to plan for, for the year? Do you expect that growth rate to stay as you get into the back half of the year, just given that the shape of the that quota-carrying ramp in 2025?

Question: S. Kirk Materne - Evercore ISI Institutional Equities - Analyst : Oli, can you just talk about whether you see any discernible change in terms of the AI natives that you're working with, in terms of what you're helping with -- them with? Meaning, I assume majority is training at this point in time, but I was curious if you're seeing inferencing come into the equation in a big way? Or even if some of your bigger enterprise customers are starting to think a little bit more about inferencing? Just trying to get a sense on where we stand on that front. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 06, 2025 / 12:00PM, DDOG.OQ - Q1 2025 Datadog Inc Earnings Call

Question: S. Kirk Materne - Evercore ISI Institutional Equities - Analyst : Okay. And then just one follow-up, maybe this is for David. Just I realize you guys have in investment right now. I'm just kind of curious, internally, how do you think about AI from an efficiency perspective? Meaning, I think Oli addressed it a little bit on the R&D side, but we've seen from other software companies that they are starting to see real yield in terms of using AI internally. That might be masked with you all given the -- just the growth rate on your investments right now. But I'm just kind of curious how you think about that perhaps longer term relative to where your margins are today versus where they could be over a longer period of time?

Question: Howard Ma - Guggenheim Securities - Analyst : I was hoping you guys could reconcile the consumption downtick in the enterprise segment versus the strong new logo ARR that I think you said

Question: Matthew Hedberg - RBC Capital Markets - Analyst : I guess, Oli, your investments can obviously change (technical difficulty).

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Let me try this. Philosophically speaking, customers optimized in 2022, 2023, are they still operating at fairly optimized levels?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. And maybe just a quick one for David. It sounds like $10 million of expenses for Eppo and Metaplane, curious if your guidance includes any impact from a revenue perspective for those two? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 06, 2025 / 12:00PM, DDOG.OQ - Q1 2025 Datadog Inc Earnings Call

Question: Brad Reback - Stifel, Nicolaus & Company, Incorporated - Analyst : Oli, there's been growing kind of customer focus on bring your own cloud. How should we think about your -- well, I should -- where do you think you philosophically as it relates to that, maybe on-prem workloads in general?

Question: Andrew Sherman - TD Cowen - Analyst : The net new adds 100,000 plus of 160 were the strongest since 4Q '22. Maybe just talk about the drivers of expansion there across new use cases, new products, share gains, and it sounds like some boomerang customers coming back to you as well?