Cloud monitoring platform Datadog (NASDAQ: DDOG) announced better-than-expected revenue in Q4 CY2025, with sales up 29.2% year on year to $953.2 million. Guidance for next quarter’s revenue was optimistic at $956 million at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP profit of $0.59 per share was 6.3% above analysts’ consensus estimates.

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StockStory’s Take

Datadog’s fourth quarter performance was met with a strong positive market reaction, reflecting broad-based customer adoption and increased multi-product usage. Management attributed this momentum to expanding demand from both enterprise clients and AI-native companies, while highlighting a record number of large deal wins. CEO Olivier Pomel pointed to rapid growth in core observability products and the company’s ongoing ability to consolidate disparate monitoring tools for large customers as critical factors supporting Datadog’s results. The company also noted stable retention rates, suggesting continued reliance on its platform.

Looking ahead, Datadog’s forward guidance is shaped by expectations for continued cloud migration, deeper AI integration, and expansion across enterprise accounts. Management cited investments in research and development, particularly in AI-driven automation and real-time monitoring, as key priorities. CFO David Obstler emphasized that while Datadog will maintain heavy investment in platform innovation, the company expects to balance efficiency and growth, stating, "We try to plan with more conservative revenues, understanding that if revenues exceed above the targets that we give, it's difficult in the short term to invest incrementally."

Key Insights from Management’s Remarks

Management credited Q4’s growth to increased adoption across core observability products, accelerated AI-native customer activity, and successful tool consolidation initiatives.

• AI-native customer expansion: Datadog saw significant uptake among AI-native companies, with over 650 such customers and 14 of the top 20 in this category now using its platform. The number of large deals with AI-focused firms grew, contributing to overall bookings momentum.
• Multi-product adoption: Management highlighted that a growing share of customers are using multiple Datadog products, with 84% of customers adopting two or more products, and notable growth in customers using four, six, or more offerings. This expansion supports higher average revenue per customer.
• Major deal wins and consolidation: The company secured some of its largest deals to date, including multi-million-dollar agreements with financial services and technology firms. These customers consolidated multiple monitoring and observability tools onto Datadog’s platform, leading to improved engineering productivity and cost savings.
• Product innovation and AI integration: Over 400 new features and capabilities were released in 2025, including the general availability of the AI SRE agent and advancements in real-time troubleshooting. Management also emphasized rapid growth in adoption of products supporting AI observability and security, as well as new offerings in storage management and data observability.
• Stable retention and diversified customer base: Gross revenue retention remained in the mid to high nineties, underscoring customer reliance on Datadog’s platform. The company also noted continued diversification across industries and geographies, lessening dependency on any single vertical or client.

Drivers of Future Performance

Datadog’s outlook for next quarter and the year centers on sustained demand for cloud observability, AI-driven product innovation, and ongoing platform investments.

• AI and automation shaping adoption: Management expects that increasing complexity in enterprise IT, driven by the rise of AI, will boost demand for automated monitoring and troubleshooting. The company is investing in AI-powered tools like the SRE agent, which are designed to reduce incident response times and improve operational resilience.
• Enterprise expansion and product breadth: Datadog anticipates further growth by deepening relationships with large enterprises, particularly as more Fortune 500 companies move their operations to the cloud. The company sees substantial opportunity to increase annual revenue per customer as organizations consolidate more observability needs onto its unified platform.
• Balancing investment and margins: While the company will continue to invest heavily in research, development, and go-to-market initiatives, management is targeting operational efficiency with an expected non-GAAP operating margin in the low 20% range. Risks include potential shifts in customer spending patterns and the need to continuously demonstrate value as clients scale AI workloads.

Catalysts in Upcoming Quarters

In the coming quarters, we will monitor (1) the pace of AI-native customer adoption and the resulting impact on multi-product usage, (2) the effectiveness of new AI-driven automation tools such as the SRE agent in driving customer expansion, and (3) Datadog’s progress in consolidating legacy observability solutions within large enterprise accounts. Continued advances in platform integration and new product launches could further influence the company’s growth trajectory.

Datadog currently trades at $130.01, up from $114.41 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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