1,583.3%.
That is Datadog's year-over-year net-income increase for the three months ended June 30, from $2.6 million to $44.6 million. Revenue grew 35.6% to $1.1 billion, and operating income moved from a $35.5 million loss to $5.5 million of profit. At the latest close, the stock was down 19.1% at $229.23.
The filing shows revenue growth alongside a move into operating profit. Gross margin fell from 79.9% to 78.6%, and the bottom line got help from income earned on cash and marketable securities.
Datadog spells out that source of help in its income statement discussion:
"Other income, (loss), net consists of interest income, primarily due to income earned on money market funds included in cash and cash equivalents and on marketable securities, partially offset by interest expense on the Notes and amortization of premiums on our marketable securities."
Datadog, Form 10-Q, Aug. 6, 2026
Interest income is part of reported profit, but it is not the same thing as the software business keeping more of each sales dollar. The operating margin did improve from negative 4.3% to 0.5%, while net margin rose from 0.3% to 4.0%. Both can be true at once: the core cost structure improved, and the net result received a boost below operating income.
Management is still spending to build the business. Research and development rose 23.4% year over year, while the company attributed higher sales and marketing costs to more employees, increased variable compensation, and greater advertising and promotional activity. Datadog's own warning is that gross margin can fluctuate with revenue and with the timing and size of investments in products and geographic coverage.
"Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand our products and geographical coverage."
Datadog, Form 10-Q, Aug. 6, 2026
That puts the margin move in context without removing the arithmetic. Datadog added sales faster than gross profit: revenue rose 35.6%, versus 33.4% growth in gross profit. Accounts receivable increased 36.9% year over year, slightly faster than revenue. Datadog does not say why.
The cash picture adds another layer. Across the six months ended June 30, operating cash flow rose to $650.5 million from $471.6 million, and free-cash-flow margin improved by 1.4 percentage points as capital-spending intensity declined. Yet cash on the balance sheet was $435.0 million at June 30, down 11.1% from a year earlier, while stock compensation rose 22.0% and diluted shares increased 3.4%.
That combination helps explain why the filing is not just a profit-recovery story. The business is growing while operating investment is higher, and cash generation improved over six months. The latest three months also show a narrower gross margin, faster-growing receivables, and earnings that include interest income.
Datadog's next 10-Q will provide the next dated comparison for accounts receivable, gross margin, and the share-based compensation line. For now, the unresolved tension is straightforward: fast revenue growth, but a thinner gross margin and a profit line partly helped by interest income.
Datadog's three-month revenue grew 35.6%, while gross margin declined 1.3 percentage points, according to its Aug. 6, 2026 Form 10-Q.