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Detailed Earnings Analysis:

Datadog DDOG 0.00%↑ , Cloudflare NET 0.00%↑ .

↗️$1,121.5M rev (+35.6% YoY, +11.4% QoQ) beat est by 4.3%

↘️GM* (79.6%, -1.4 PPs YoY)🟡

↗️Operating Margin* (22.9%, +3.1 PPs YoY)

↗️FCF Margin (24.9%, +4.9 PPs YoY)

↗️Net Margin (4.0%, +3.7 PPs YoY)

↗️EPS* $0.80 beat est by 37.9%🟢

*non-GAAP

Key Metrics

➡️DBNR 122% (122% LQ)

↗️RPO $3.47B (+43.1% YoY)

↗️Billings $1,177M (+38.0% YoY)🟢

Customers

➡️33,400 customers (+6.4% YoY, +200)🔴

➡️4,720 $100k+ customers (+22.6% YoY, +170)

Platform Adoption

➡️% of customers using 2+ products (85%, 85% LQ)

↗️% of customers using 4+ products (58%, 56% LQ)

↗️% of customers using 6+ products (37%, 35% LQ)

↗️% of customers using 8+ products (22%, 20% LQ)

↗️% of customers using 10+ products (13%, 11% LQ)

Customers using products

↗️19,372 customers 4+ (+18.6% YoY, +780)

➡️12,358 customers 6+ (+35.7% YoY, +738)

➡️7,348 customers 8+ (+67.2% YoY, +708)

➡️4,342 customers 10+ (+97.5% YoY, +690)

Operating expenses

↘️S&M*/Revenue 23.2% (-1.0 PPs YoY)

↘️R&D*/Revenue 29.0% (-2.8 PPs YoY)

↘️G&A*/Revenue 4.4% (-0.6 PPs YoY)

Quarterly Performance Highlights

↗️Net New ARR $460M (+75.8% YoY)

↘️CAC* Payback Period 7.6 Months (-2.5 YoY)🟢

↗️R&D* Index (RDI) 1.20 (+0.19 YoY)🟢

Dilution

↗️SBC/rev 20%, +0.1 PPs QoQ

↘️Basic shares up 2.9% YoY, -0.1 PPs QoQ

↗️Diluted shares up 3.4% YoY, +3.0 PPs QoQ

Guidance

↗️Q3’26 $1,135.0 - $1,145.0M guide (+28.7% YoY) beat est by 3.2%

↗️$4,450.0 - $4,470.0M FY guide (+30.1% YoY) raised by 3.0% beat est by 2.8%

🟢Positive

Revenue reached $1.12B, +35.6% YoY and +11.4% QoQ, beat est by 4.3%. EPS of $0.80 beat est by 37.9%.
Operating margin improved to 22.9%, +3.1 PPs YoY, and FCF margin reached 24.9%, +4.9 PPs YoY.
RPO increased +43.1% YoY to $3.47B, billings rose +38.0% YoY to $1.18B, and net new ARR rose +75.8% YoY added $460M new ARR.
Non-AI customer revenue accelerated to high-20%, from mid-20% in Q1 and 18% a year ago, five quarters of acceleration.
AI adoption strong with 750+ AI customers, including all 10 top AI leaders. MCP tool calls increased more than 22x versus Q4 2025 and 4x QoQ again.
Platform adoption: 58% of customers use 4+ products, 37% use 6+, and 13% use 10+. Customers using 10+ products increased +97.5% YoY.
Real User Monitoring surpassed $200M ARR and grew +50% YoY.
Enterprise new-logo annualized bookings 2x YoY, and new customers contributed about 30% of YoY revenue growth, up from 25% in Q1.
CAC payback improved to 7.6 months, down 2.5 months YoY, indicating stronger sales efficiency.
FY2026 revenue guidance raised to $4.45B - $4.47B, beat est by 2.8%.
DBNR strong at 122%.

🟡Neutral

Q3 revenue guidance of $1.135B - $1.145B with 28% - 29% YoY growth.
Gross margin declined to 79.6%, down from 80.9% YoY. Management expects gross margin around 80% level long term.
Customer count reached 33,400, +6.4% YoY, but increased by only 200 QoQ.
SBC high at 20% of revenue, and diluted share count increased 3.4% YoY.

🔴Negative

Total customer growth modest versus historical levels.

Strong Q2 from DDOG, despite shares falling 15% after earnings. Revenue growth accelerated to +35.6% YoY, while management’s Q2 guidance was beaten by 3.8%. Full-year 2026 revenue guidance was raised by roughly the same amount, +3.0%.

Q3 guidance is 3.2% above analyst estimates, and if Datadog beats guidance by a similar amount as in Q2, revenue growth would be around +34.3% YoY. In my view, Q3 guidance was the main reason for the selloff. Before earnings, DDOG shares had gained 115% YTD, valuation multiples had also expanded significantly, and the market had priced in high expectations for continued revenue acceleration. Growth of around +34.3% YoY would represent stabilization at a high level, but not further acceleration.

Management also noted that guidance already includes lower usage from Datadog’s largest customer.

Billings growth accelerated to +38% YoY and continues to outpace revenue growth. RPO growth slowed to +43.1% YoY, but still well above revenue growth. DDOG has a consumption-based pricing model, which makes RPO growth more volatile than for SaaS companies with traditional subscription models.

Main negatives were lower gross margin and weak total customer additions.

Non-GAAP gross margin declined to 79.5% from 80.9% a year ago. Management attributed the decline to investments in infrastructure and AI inference costs, while still expecting long-term gross margin around 80%.

As Datadog has grown, it has become a full platform offering more than 25 modular products and increasingly focuses on larger customers. Because of this, growth in total customer count is becoming less relevant. Customers with $100K+ ARR are also no longer truly large customers for Datadog, as they now generate around 90% of revenue. Retention and platform adoption are becoming more important metrics.

Customer retention strong. DBNR increased to 122% from 120% a year ago, while gross revenue retention high at around 96% - 97%.

Platform adoption showed strong results in Q2. Share of customers using 6+ products, 8+ products, and 10+ products increased by 2 PPs QoQ. Number of customers using 10+ products grew 98% YoY, significantly faster than revenue growth.

Observability still generates more than 70% of Datadog’s revenue and includes Infrastructure Monitoring, APM, Log Management, Network Monitoring, and Database Monitoring.

Database Monitoring was expanded with Bits Database Optimizer, which evaluates AI-generated changes and helps optimize queries.

Management noted that higher workload volumes from existing customers helped revenue from non-AI customers accelerate to +27% YoY, up from +25% in Q1 and +18% a year ago. Growth has now accelerated for five consecutive quarters.

Datadog’s newer AI Platform includes products such as LLM Observability, GPU Monitoring, and Bits AI.

LLM Observability is one of Datadog’s fastest-growing products, and management noted that all top 10 AI leaders use the platform. Datadog now has more than 750 AI customers.

Agentic AI activity is accelerating especially fast. MCP tool calls increased 4x QoQ and are now 22x higher versus Q4 2025.

Bits AI was expanded significantly and can now create and maintain monitors, identify root causes, recommend and implement fixes, apply guardrails, learn from past incidents, and detect problematic behavior before infrastructure issues escalate.

Datadog prioritizes investment in R&D over S&M, putting innovation and platform expansion first. At DASH, the company announced more than 100 products and features. New AI capabilities include Agent Console, Agent Observability, Bits Evals, Data Observability, GPU Monitoring, and AI Guard.

Datadog is also investing in its own AI models, including Toto 2.

Strong retention and platform adoption confirm the high effectiveness of Datadog’s R&D investments.

↗️$696.1M rev (+35.9% YoY, +8.8% QoQ) beat est by 4.7%

↘️GM* (73.1%, -3.2 PPs YoY)🟡

↘️Operating Margin* (13.8%, -0.3 PPs YoY)🟡

↗️FCF Margin (8.1%, +1.6 PPs YoY)

↘️Net Margin (-24.4%, -14.6 PPs YoY)🟡

↗️EPS* $0.29 beat est by 7.4%🟢

*non-GAAP

Key Metrics

↗️DBNR 120% (118% LQ)

↗️RPO $2.73B (+38.2% YoY)🟢

➡️Billings $754M (+34.8% YoY)🟡

Customers

↗️4,698 $100k+ customers (+26.6% YoY, +282)

Operating expenses

↘️S&M*/Revenue 33.4% (-2.2 PPs YoY)

↘️R&D*/Revenue 14.9% (-1.4 PPs YoY)

↗️G&A*/Revenue 11.0% (+0.7 PPs YoY)

Quarterly Performance Highlights

↗️Net New ARR $225M (+69.6% YoY)

↘️CAC* Payback Period 16.7 Months (-4.8 YoY)🟢

↗️R&D* Index (RDI) 2.21 (+0.48 YoY)🟢

Dilution

↗️SBC/rev 20%, +0.3 PPs QoQ

↘️Basic shares up 2.0% YoY, -0.0 PPs QoQ

↘️Diluted shares down -3.0% YoY, -11.6 PPs QoQ🟢

Headcount

↘️4,700 Total Headcount (+1.8% YoY, -783 added)🔴

Guidance

↗️Q3’26 $736.0 - $737.0M guide (+31.0% YoY) beat est by 2.0%

↗️$2,864.0 - $2,870.0M FY guide (+32.2% YoY) raised by 2.0% beat est by 2.0%

🟢Positive

Revenue rose +35.9% YoY, beat est by 4.7%. EPS of $0.29 beat est by 7.4%.
Forward indicators: RPO grew +38.2% YoY, DBNR improved to 120% from 118% in last quarter, and net new ARR increased +69.6% YoY.
Cloudflare reached 4,698 $100K+ customers, +26.6% YoY, adding 282 in Q2. Large customers generated 73% of revenue, up from 71% last year.
Cloudflare’s fastest-growing product now is Workers. Developer count exceeded 7.4M, with 2M added in Q2 versus 1.5M during 2025.
AI positioning strengthened: >50% of network traffic is now non-human, and 80%+ of major AI companies are Cloudflare customers, act Four expands exposure to agent infrastructure, security, identity, payments, and monetization.
Sales productivity increased for the 10th consecutive quarter, and new customer bookings and pipeline generation reached their strongest growth pace in more than five years.
FCF margin improved to 8.1%, +1.6 PPs YoY, and CAC payback fell to 16.7 months, improving by 4.8 months YoY.
FY2026 revenue guidance increased by 2.0% to $2.864B - $2.870B, with +32.2% YoY growth and beat est by 2.0%.

🟡Neutral

Gross margin down 73.1%, -3.2 PPs YoY, but improved +30 bps QoQ, its first sequential increase in eight quarters. Management expects margin to stabilize near current levels.
Non-GAAP operating margin 13.8%, down 0.3 PPs YoY, but improving 240 bps QoQ.
Billings grew +34.8% YoY to $754M, slightly below revenue growth.
Cloudflare is moving toward pool-of-funds and consumption-based contracts, improving monetization flexibility but increasing QoQ revenue variability and reducing forecast precision.
Partners represented 31% of revenue, management seeing potential for this mix to eventually exceed 50%-60%.
Cloudflare is avoiding the GPU CAPEX race and focusing on higher-utilization infrastructure.
Headcount fell to 4,700, -783 employees QoQ, reflecting restructuring for cost optimization.
SBC high at 20% of revenue, up +0.3 PPs QoQ.

🔴Negative

GAAP net margin decrease to -24.4%, down -14.6 PPs YoY, affected by restructuring costs.
Restructuring and severance charges reached $151M in Q2, including $99M in cash payments. Full-year charges are expected at up to $165M, with up to $130M cash-related.

Strong Q2 from $NET, shares up +16% after ER. Revenue growth accelerated to +35.9% YoY, and Q3 guidance beat estimates by 2.0%. Q2 revenue beat management guidance by 4.7% (strongest beat since 2021). If Cloudflare beat similar in Q3, revenue growth would accelerate to +37.3% YoY.

cRPO growth accelerated to +34% YoY, slightly below revenue growth, RPO growth also accelerated to +38.2% YoY, above revenue growth, supporting further revenue acceleration. High retention also supports future growth, DBNR increasing to 120% from 118% last quarter.

FY2026 revenue guidance was raised by 2%.

Importantly, the negative trend in gross and operating margins reversing in Q2. Gross margin increased QoQ to 73.1%, and operating margin improved to 13.8%.

On the negative side, net income declined, GAAP net margin falling to -24.4%. Management previously expected Cloudflare to reach GAAP profitability by the end of 2028, and during the conference call said profitability is now expected earlier than previously planned.

Large-customer additions reached a record level in Q2, with 282 new $100K+ customers added during the quarter.

Cloudflare is benefiting from growing AI-agent traffic.

Zero Trust is benefiting from growing AI-agent security demand. In Q2, a Fortune 100 technology company signed a 3 year, $5.2M SASE contract, replacing legacy VPN infrastructure.

More than 80% of major AI companies are Cloudflare customers, and more than 50% of traffic across Cloudflare’s network is now non-human. Management previously expected non-human traffic to overtake human traffic only in H2 2027, meaning AI traffic is growing significantly faster than expected, and Cloudflare is one of the beneficiaries of this transition.

Act Four expands Cloudflare’s platform into agent infrastructure and payments. Cloudflare also introduced Monetization Gateway, Wallets, and cloudflare.pay for autonomous agents. Following expansion into new product layers, management now estimates Cloudflare’s TAM at more than $300B.

Cloudflare also launched a research pilot with OpenAI focused on improving economics between AI companies and content creators.

Cloudflare is moving from a traditional subscription pricing model toward a more consumption-based model, which better fits Workers and AI workloads but adds more volatility to quarterly revenue growth.

Datadog, Cloudflare Earnings Q2 2026

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