Strong 1Q26 results with more upside ahead

Strong 1Q26 results with more upside ahead Target PriceUS$203.10(Previous TPUS$196.90)Up/Downside7.6%Current PriceUS$188.73 Datadog released(7 May BJT)its 1Q26 results:total revenue reachedUS$1.0bn, up 32% YoY (1Q25: 25%; 4Q25: 29%), 5% above both our forecastand Bloomberg consensus estimates. The upside was driven by stronger-than-expectedacceleration in revenue growth from non-AI customers(from20%/23%YoY in 3Q25/4Q25 to the mid-20% range in 1Q26),alongsidecontinued robust demand from AI-native customers. During the quarter, non-GAAPNP after tax adjustment reached US$218.2mn,up 30%YoY and18%/16% above our forecast/consensus, supported by the revenue beat andstronger-than-expected operating leverage.Management noted that ARRgrowth accelerated sequentiallyforeach month of 1Q26 and that this healthygrowth trend continued into April. Management guided for 29-31% YoY revenuegrowth in 2Q26E (2Q25: 28%) and raised its FY26 revenue guidance by 6% toUS$4.30bn-4.34bn, implying 25-27% YoY growth. We raise our 2026E-2028Erevenue forecasts by 5-6% and non-GAAP net profit forecasts by 10-15% toreflectstronger customer demand and better-than-expected operatingefficiency. We lift our TP to US$203.1 (from US$196.9), based on an unchanged16.3x 2026E EV/Sales multiple, in line with the three-year average plus onestandard deviation. Maintain BUY. US Software & IT Services Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Strong cross-sell and upsell momentum sustained in 1Q26.By the endof 1Q26, Datadog’s customer base exceeded 33,200, up 9% YoY. Thenumber of customers with ARR above US$100k reached 4,550, up 21%YoY (1Q25: 13%; 4Q25: 19%). Customers with ARR above US$100kaccounted for 90% of total ARR in 1Q26 (1Q25: 88%). As of 1Q26,approximately85%/56%/35%/20%/11%of customers used more than2/4/6/8/10productsrespectively,representingYoYincreasesof2/5/7/7/5ppts.Key operating metrics remained solid: 1)RPO reachedUS$3.48bn, up 51% YoY (4Q25: 52%; 1Q25: 34%), while current RPO grewin the mid-40% range YoY (4Q25: about-40%); and 2) TTM net revenueretentioncameinatalow-120% range in 1Q26, further improving fromaround 120% in 4Q25 and the high-110% range in 1Q25. Stock Data Demand trends remained healthy across both AI-native and non-AIcustomercohorts.Among AI-native customers,the customer basecontinued to diversify and expand, including 22 customers spending morethan US$1mn annually and five customers spending more than US$10mnannually. Revenue excluding AI-native customers grew in the mid-20%rangeYoY in 1Q26,accelerating from 18%/20%/23%YoY in2Q25/3Q25/4Q25. Improving operating efficiency while continuing to invest for long-termgrowth.For 1Q26, non-GAAP operating margin reached 22.2% (1Q25:21.9%),0.9ppt above both our forecast and Bloomberg consensusestimates.Although management reiterated its intention to continueinvesting to support long-term growth, it raised FY26 non-GAAP operatingprofit guidance to US$940mn-980mn (from US$840mn-880mn), implying anon-GAAP operating margin of 21.7-22.8%. In our view, this demonstratesDatadog’s strong capability to balance sustained revenue growth withsolidprofitability. Source: FactSet For 2Q26E, management guidedfor: 1) revenue of US$1.07bn-1.08bn, representing29-31% growth YoY, andthe mid-point of guidanceis8% ahead of consensus; and 2) non-GAAP net income per share of US$0.57-0.59(consensus: US$0.52). Source:Bloomberg,CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in thisreport: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered inthis research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of theHongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock withpotential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the rele