OpEx growth was largely stable at 25% Y/Y compared to 26% growth last quarter and 32% last year. They continue to invest extensively in go-to-market, as there are still pockets of the globe where they remain very underpenetrated and see easy ways to fix that. A big piece of that is a newer focus on gearing their existing products towards startups in more friendly ways. They’re expanding the Datadog for Startups initiative to cater better to companies with very small usage requirements. They want those companies starting with DDOG earlier on, so they have a better chance of scaling with them and never leaving. I think we've all seen headlines about random AI startups ramping to several hundred million in ARR in weeks. Startups are approaching commercial scale far faster than they ever have, making this tweak to their go-to-market prioritization quite reasonable.

Non-GAAP gross margin was 81.2% vs. 79.6% Q/Q and flat Y/Y. Leadership expects it to keep hovering around 80% as platform adoption and engineering work offset each other. FCF margin dipped to 21% due mainly to collection and payment timing, but it was 26% on a trailing 12-month basis.

Their approach to guidance is unchanged. They guide to what they see and bake in an added layer of prudence due to the unpredictable nature of their usage based model. That prudence is especially sharp for their OpenAI revenue contribution assumptions. They assume the contractual minimum for revenue there, leaving all potential surprise to the upside. That helped outperformance this quarter and I’m all but sure that it will next quarter too. Excluding OpenAI, revenue growth would have been around 32%-33% Y/Y compared to the 25.5% growth guidance they offered. Besides MongoDB, there is no company I can think of that consistently sandbags as much as this one does. And again, considering the consumption-based nature of their platform, that caution is well-placed.

There was also a second early renewal headwind that held things back further. A lot of large customers (including OpenAI) re-signed before they were expected to, signaling confidence in ramping usage of DDOG’s modules. While that’s great for the health of the platform, it’s a headwind for near-term revenue generation. These contracts come with higher expected usage, but also lower cost per single unit of consumption. There are always volume-based discounts. So? Before the expected incremental scaling benefit kicks in, the immediate revenue generation from the same amount of activity is a bit lower. Not concerning in the least to me. It’s good news. 

Datadog trades for 60x forward EPS. EPS is expected to grow by 34% this year and by 16% next year. Expensive name (like it always has been).