"The real story here extends beyond the headline beat. Datadog generated $251 million in operating cash flow and $214 million in free cash flow during the quarter, demonstrating that the company's high-margin SaaS model is translating into real cash generation. Non-GAAP operating margin expanded to 23%, with operating income of $207 million. This matters because it shows the business is scaling efficiently even as the company continues to invest heavily in product development."
"There is one notable caveat. GAAP operating income came in at negative $6 million, compared to $20.3 million in the prior year. This reflects continued investment in research and development, particularly around artificial intelligence capabilities. The company's R&D team has been focused on building AI-native observability and security features, which explains the gap between non-GAAP and GAAP profitability. For investors tracking GAAP metrics, this remains a pressure point, though the company's cash generation suggests the investments are strategic rather than wasteful."
Datadog reported Q3 non-GAAP EPS of $0.55 versus $0.46 expected and revenue of $886 million versus $852.3 million expected, reflecting 28% year-over-year revenue growth. Customers with at least $100,000 in ARR grew 16% to 4,060, driven by deeper enterprise adoption. Gross margin stayed near 80%. The company generated $251 million in operating cash flow and $214 million in free cash flow, with non-GAAP operating margin expanding to 23% and operating income of $207 million. GAAP operating income was negative $6 million, reflecting continued R&D investment in AI-native observability and security features.
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