Datadog Inc Q2 2025 Earnings Call Transcript

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

Question: Raimo Lenschow - Barclays Services Corp - Analyst : Perfect. Two quick questions from me. Olivier, like you talked about the AI contribution and slowly broadening out. How should we think about it in terms of when this goes much broader into inference, et cetera? So does that everyone like Barclays, JPMorgan, et cetera, they all kind of need to do more around observability because they're going to do more inference, et cetera? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call So in a way, like OpenAI, et cetera, is just setting the scene for the future? And what do you think about the market opportunity there? And then, David, in the second half of last year, you hired a lot of extra sales guys. Can you talk a little bit about that ramp and where they are in their productivity curve?

Question: Raimo Lenschow - Barclays Services Corp - Analyst : Thank you.

Question: Matthew Martino - Goldman Sachs International - Analyst : This is Matt Martino on for Kash Rangan. David, you called out enterprise consumption volatility the last quarter. It sounds like that may have been consistent this time around, while SMB continues to improve. So could you perhaps characterize any discernible trends between these two customer demographics, what went right relative to your expectations heading into 2Q? And really how that informs your second half guide? That's it for me.

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : I'll add my congrats. So Olivier, I actually wanted to ask you about those announcements, it looks like you're bringing very serious AI research to a space where it is applicable. And opening it up very broadly, the size of the data set is vast. I'm curious what type of response do you expect to see here? And just help us understand maybe how that can sustain growth in future years? And I have a quick follow-up for David.

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Okay. And then, David, we keep pointing out that Datadog is one of the only software companies that are investing seriously in headcount growth. And it feels like that is paying top line dividends pretty tremendously today. We noticed the R&D spending is up noticeably in Q2. Just wondering REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call what are the mechanics that are driving that on the R&D line? And then -- the flip side is what's allowing you to guide operating income so much higher in Q3 than you had guided that for Q2?

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Thank you.

Question: Koji Ikeda - Bofa Merrill Lynch Asset Holdings Inc - Analyst : We all see that the second quarter was really, really strong. Guidance for 2025 looks really, really great. And so I wanted to ask you about contract visibility. How are you feeling about contract visibility specifically with your large AI native customers? I have to imagine you're very close to these customers and having lots of conversations with them. And so I know there is some concern about there. And David, you mentioned potential volatility. So I really want to ask about how you're feeling about contracted visibility? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call

Question: Koji Ikeda - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Thanks so much. And I did have a follow-up on security. And so it sounds -- I mean, great to hear about the milestones, $100 million around 40%. And so thinking about the product set, how are you thinking about expanding the capabilities from here? Are you focused on more organic, inorganic? And maybe an update to your M&A philosophy? Or I mean, I guess the question here is, are you willing to go much bigger to supplement your security strategy?

Question: Koji Ikeda - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Thank you so much.

Question: Karl Keirstead - UBS AG - Analyst : Okay. Great. Maybe I'll direct this to David and link the AI native exposure to margins. So David, now that the AI natives are 11% of Datadog's revenue mix. I think it's fair to ask whether the revenues from that cohort are coming at similar margins as the rest of the business? Or do you think that this could be even short term, a modest source of margin pressure? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call

Question: Karl Keirstead - UBS AG - Analyst : Got it. And maybe the natural follow-up there is, David, you mentioned that you're optimistic about gross margins in the second half. Is that because of what Olivier just mentioned? Or are there some other drivers you have in mind?

Question: Karl Keirstead - UBS AG - Analyst : Thank you.

Question: Mike Cikos - Needham & Company LLC - Analyst : I just wanted to double back on the enterprise segment and just -- this is for Oli. But if I'm thinking about it, I know that we have the enterprise demonstrating this stable growth, is it fair to assume -- like is the analogy for enterprises who are more traditional using CPU versus the AI native companies are growing investment in GPUs is it analogous to like 15 years ago where we saw, hey, on-prem continues to see investment, but maybe more dollars are going towards cloud. Is that like a fair analogy when we think about what sort of behavior is exhibited by these different customers and where Datadog is headed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call

Question: Mike Cikos - Needham & Company LLC - Analyst : Understood. And congrats on the security. I didn't want to leave hanging. I don't know if we got commentary on it, but could we please get an update on Flex Logs? I know it was a shining star if I go back a quarter ago, but just wanted to see how progress is tracking on the Flex Logs side of the house?

Question: Mike Cikos - Needham & Company LLC - Analyst : Great. Thank you.

Question: Jake Roberge - William Blair Capital Partners - Analyst : There's obviously been a lot of talk about AI natives around the business. I know you've talked about potential for optimization for several quarters, but we continue to see really strong growth in that segment. So if you were to see optimization, when would you expect that to happen? And as REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call you get a wider swath of customers in that AI native cohort, do you think you're at a place where you could actually digest in optimization by one or two of those customers?

Question: Brent Thill - Jefferies LLC - Analyst : David, just on the quota-carrying rep capacity, I know you've been investing aggressively ahead of the curve. But when you think about 2025 or -- are you accelerating that count based on the great results you've seen? Are you digesting that count given those reps are on board? Just give us a sense of flavor of what that quota rep count looks like through the rest of the year? And if you can shape how that looks versus '24?

Question: Brent Thill - Jefferies LLC - Analyst : Okay. And Olivier, I'm just curious, many CEOs are either holding headcount flat or down. We've seen Meta headcount down from two years ago, Microsoft headcount flat, others Palantir they're saying they're going to shrink headcount in 10x revenue. Do you believe you can become more efficient with fewer or do you think that, that model doesn't apply that you're seeing with other software companies?

Question: Brent Thill - Jefferies LLC - Analyst : Great. Thanks.

Question: Andrew DeGasperi - Exane Bnp Paribas - Analyst : First, on the ramp-up in terms of sales capacity, would you say that's been broad-based in terms of the productivity across both international and domestic?

Question: Andrew DeGasperi - Exane Bnp Paribas - Analyst : That's helpful. And then on the enterprise side. I mean, given some of these reps are obviously on the ground, should we expect the number of attach rates in terms of the three or four more products per customer sort of accelerate at this level? I know they've been picking up about 1 point every quarter. Just wondering if that's something we should be seeing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 07, 2025 / 12:00PM, DDOG.OQ - Q2 2025 Datadog Inc Earnings Call

Question: Andrew DeGasperi - Exane Bnp Paribas - Analyst : Thank you.