Datadog (DDOG) Q3 2025: Security ARR Jumps 50% as Platform Adoption Accelerates
Datadog delivered a decisive acceleration in both core and AI-native customer growth, with security ARR up over 50% YoY and multi-product adoption deepening across the base. Broad-based demand, new logo momentum, and rapid Bits.ai agent uptake signal Datadog’s expanding relevance as cloud and AI complexity rises. Management’s focus on scaling sales capacity and platform breadth positions the company to capitalize on secular cloud and AI tailwinds into 2026.
Summary
- Security Upswing: Security ARR growth accelerated past 50% YoY, broadening Datadog’s platform reach.
- Sales Productivity Inflection: Expanded go-to-market and new logo wins drove record new customer bookings.
- AI-Driven Differentiation: Bits.ai agent adoption and AI observability integrations point to durable platform edge.
Performance Analysis
Datadog’s third quarter revealed a step-function improvement in both top-line growth and platform adoption, with revenue up 28% YoY and free cash flow margin holding at 24%. The company’s customer base expanded to 32,000, with high-value customers (those with $100,000+ ARR) now generating nearly 90% of total ARR. Notably, the share of customers using four or more products rose to 54%, and those using six or more reached 31%, underscoring Datadog’s cross-sell execution and the stickiness of its unified observability-security platform.
Security ARR surged over 50% YoY, outpacing last quarter’s mid-40s pace, driven by cloud SIEM, code security, and FlexLogs adoption. AI-native customers now comprise 12% of revenue, up from 6% a year ago, and the AI cohort is broadening, with over 100 customers spending $100,000+ and 15 exceeding $1 million annually. Billings and RPO growth (up 30% and 53% YoY, respectively) signal strong forward momentum, while net revenue retention remains robust at 120%.
- Platform Consolidation: Large enterprises are consolidating dozens of point tools onto Datadog, driving multi-product deals and operational savings.
- Go-to-Market Expansion: New logo annualized bookings more than doubled YoY, with enterprise land sizes increasing and sales investments paying off.
- AI and Security Synergy: Bits.ai agent preview traction and security suite wins are fueling differentiated growth across both new and existing customers.
Datadog’s ability to drive both new logo momentum and deeper wallet share among existing customers sets a durable foundation for sustained growth.
Executive Commentary
"We have seen broad-based positive trends in the demand environment, with an ongoing strength of cloud migration and digital transformation. Against this backdrop, we executed a very strong Q3, both in new logo bookings and usage growth of existing customers... Our platform strategy continues to resonate in the market."
Olivier Pommel, Co-founder and CEO
"We saw sequential usage growth from existing customers in Q3 that was higher than our expectations and the strongest in 12 quarters, in our non-AI native customer base. New logo annualized bookings more than doubled year over year and set a new record, driven by an increase in average new logo land size, particularly in enterprise."
David Ochsler, CFO
Strategic Positioning
1. Security Suite Momentum
Security ARR growth exceeding 50% YoY marks a material acceleration in Datadog’s ability to monetize security alongside observability. Cloud SIEM, code security, and cloud security are seeing rapid uptake, with large deals now routinely including multiple security modules. This validates Datadog’s thesis that unified observability and security are converging as enterprises seek platform solutions to reduce operational friction and tool sprawl.
2. AI Observability and Bits.ai Agents
Datadog is aggressively investing in AI-driven automation and observability, with thousands of customers now previewing Bits.ai SRE agents. Early adopter feedback highlights substantial reductions in mean time to resolution, and over 5,000 customers are sending AI data through new integrations. The MCP server and LLM Observability modules are positioning Datadog as the connective tissue for AI applications across the stack, further cementing the platform’s centrality as AI adoption proliferates.
3. Sales Capacity and Go-to-Market Scale
Recent investments in sales headcount and specialized go-to-market motions are translating into record new logo bookings and faster ramp times for new customers. Enterprise-focused teams are landing larger, multi-product deals, while compensation tweaks are incentivizing pursuit of both new and upmarket accounts. This operational scaling is critical as Datadog targets white space in Fortune 500 and global enterprise segments.
4. Product Breadth and Integration Depth
With over 1,000 integrations and average customers using 50+ integrations, Datadog’s breadth is a key moat. Large customers leverage 150+ integrations, enabling deep data correlation across cloud, on-prem, and AI workloads. This extensibility is driving platform stickiness and enabling Datadog to keep pace with evolving tech stacks and deployment patterns.
5. Durable Cloud and Digital Transformation Tailwinds
Management continues to frame digital transformation and cloud migration as long-term secular drivers, with no signs of cyclical slowdown. Non-AI customer revenue growth accelerated for the second straight quarter, and Datadog’s platform is increasingly viewed as mission-critical infrastructure for both legacy and next-gen workloads.
Key Considerations
Datadog’s Q3 showcased a convergence of execution, product innovation, and end-market tailwinds, but investors should contextualize the durability and scalability of these gains as competition intensifies and AI adoption patterns evolve.
Key Considerations:
- Security as a Growth Engine: Security suite momentum is accelerating, but continued cross-sell and upsell execution will be needed to sustain outsized ARR growth rates.
- AI Monetization Path: Bits.ai and LLM Observability are gaining traction, yet direct revenue contribution remains early; packaging and usage-based monetization will determine long-term impact.
- Sales Productivity and Scale: New logo wins and faster ramp times are positive, but maintaining productivity while scaling headcount is a perennial SaaS challenge.
- Customer Concentration in AI: While the AI cohort is broadening, large AI-native customers can drive volatility in contract economics and renewal dynamics.
- Platform Depth vs. Point Solution Competition: Datadog’s integration breadth is a differentiator, but best-of-breed competitors in security and AI observability remain aggressive.
Risks
Datadog faces risk from increased competition in observability, security, and AI monitoring as hyperscalers and point solutions jockey for share. Large-customer contract renewals and volume-based discounting could pressure revenue growth or margins, especially as AI-native customers scale usage. Macro slowdowns or shifts in cloud migration pace would also impact Datadog’s consumption-based model, and the monetization timing of AI products remains uncertain.
Forward Outlook
For Q4 2025, Datadog guided to:
- Revenue of $912 to $916 million (24% YoY growth implied)
- Non-GAAP operating income of $216 to $220 million (24% margin)
For full-year 2025, management raised guidance to:
- Revenue of $3.386 to $3.390 billion (26% YoY growth implied)
- Non-GAAP operating income of $754 to $758 million (22% margin)
Management highlighted:
- Conservatism in guidance, incorporating seasonality and holiday usage patterns into Q4 expectations
- Continued scaling of sales capacity and product innovation, with a focus on security, AI, and large enterprise segments into 2026
Takeaways
Datadog’s Q3 results demonstrate a rare combination of broad-based demand, deepening platform adoption, and accelerating security and AI momentum.
- Multi-Product Adoption Drives Stickiness: Over half of customers now use four or more products, increasing Datadog’s share of wallet and reducing churn risk as platform depth grows.
- Security and AI as Next Growth Pillars: Security ARR growth and Bits.ai agent adoption are reshaping Datadog’s long-term revenue mix and competitive positioning.
- Watch for Monetization and Margin Evolution: Investors should monitor the ramp of AI product monetization, competitive pricing pressure, and Datadog’s ability to scale sales productivity as it targets larger enterprise customers.
Conclusion
Datadog exits Q3 with accelerating revenue, multi-product traction, and early leadership in AI observability and security. Execution on sales scale and continued innovation will be critical as Datadog navigates a rapidly evolving cloud and AI landscape.
Industry Read-Through
Datadog’s results reinforce the secular shift toward unified observability and security platforms, as enterprises seek to consolidate tooling and manage rising AI-driven complexity. The acceleration in security ARR and multi-product adoption signals that best-of-suite vendors are gaining share over point solutions, especially in large enterprise buyers. Early traction for AI observability and agentic automation suggests that vendors who can bridge legacy, cloud, and AI-native workloads will be best positioned as the next wave of digital transformation unfolds. For the broader software infrastructure sector, Datadog’s momentum highlights the premium on extensibility, integration depth, and operational efficiency as key competitive moats in the era of cloud and AI convergence.