Will Datadog's dollar-based net retention rate fall below 115% in any quarter reported by H1 2026?

Q4 2025 confirmed NRR at ~120%, eliminating one of three resolution quarters. The trajectory has been stable at ~120% for three consecutive quarters (Q2-Q4 2025) after improving from 'high 110s' in Q1. For NRR to drop below 115% in Q1 or Q2 2026, expansion would need to contract dramatically — a 5pp decline from a sustained level in just 1-2 quarters. Non-AI usage growth actually accelerated to 23% YoY (from 20%), strengthening the expansion component. RPO at $3.46B (+52%) provides strong forward visibility on committed spend. Record bookings of $1.63B (+37%) add further expansion support. The gross retention floor in mid-to-high 90s means the decline would have to come entirely from the expansion component essentially evaporating. Calibration from sibling markets suggests the ensemble should be more confident on NO-leaning outcomes.

With Q4 2025 NRR at ~120% now confirmed, the resolution window narrows to Q1 and Q2 2026 only. The prior batch estimated 12% when three quarters were in play and data was 129 days stale. Now with fresh data confirming stability and one fewer quarter, probability should decrease meaningfully. The key remaining risk scenario is a sudden macro shock (e.g., severe recession, cloud spending freeze) that compresses usage-based revenue. However, even the 2022-23 optimization cycle — the worst recent stress test — did not push disclosed NRR below 115%. RPO growth at 52% and accelerating non-AI usage (23% vs 20%) suggest expansion is broadening, not narrowing. Insider selling remains elevated but all under 10b5-1 plans and not correlated with NRR weakness. The qualitative disclosure nature means management would need to characterize NRR as 'approximately 115%' or lower — a substantial qualitative shift from the consistent '~120%' framing.

Structural analysis makes sub-115% NRR nearly impossible without unprecedented disruption. Gross retention in mid-to-high 90s (say ~96-97%) means NRR of 115% implies only ~18-19% net expansion from existing customers. Current expansion is running at ~23-24% (NRR ~120% minus gross retention ~96-97%). For expansion to halve in 1-2 quarters would require a simultaneous contraction in: (1) non-AI customer usage (currently at 12-quarter highs), (2) AI native cohort spending (currently the fastest-growing segment), and (3) multi-product cross-sell (adoption deepening across all tiers). All three vectors would need to reverse simultaneously. RPO at $3.46B provides 6+ months of contracted visibility. The committee's confirmation of both REVENUE_DURABILITY and COMPETITIVE_POSITION signals with Q4 data reinforces structural resilience. Calibration lesson from siblings: be more confident when fundamentals clearly support NO.

The Q4 2025 earnings report is a decisive data point: NRR stable at ~120% for the third consecutive quarter, with all expansion metrics either stable or improving. This eliminates one resolution quarter and confirms the trajectory remains firmly above 115%. The remaining Q1 and Q2 2026 quarters would need to show unprecedented compression. Key factors supporting continued stability: non-AI usage growth accelerated to 23% (expanding the base expansion component), record bookings of $1.63B suggest strong pipeline for future quarters, and RPO at $3.46B provides multi-quarter forward visibility. The only credible scenario for sub-115% NRR would be a severe macro shock combined with a sudden cloud spending freeze, which even the 2022-23 cycle didn't produce. Prior sibling market calibration shows the ensemble was insufficiently confident on NO outcomes — adjusting accordingly.

While the Q4 data strongly favors NO, I want to ensure adequate weight on tail risks. The usage-based model has demonstrated vulnerability to macro-driven consumption volatility. Two scenarios could still trigger YES: (1) A sharp economic downturn in H1 2026 causing enterprise budget cuts that compress usage-based spending — though this would need to be more severe than the 2022-23 cycle which didn't breach 115%; (2) A specific large-customer concentration event — if a top customer like OpenAI renegotiates terms with 'better economics for higher commitment' meaning materially lower unit prices, the expansion component from AI customers could compress. However, the accelerating non-AI usage (23% YoY) provides diversification against AI-customer-specific risk. The ~120% stability across three quarters and narrowed resolution window make even these tail scenarios unlikely to produce a full 5pp compression.

Base rate analysis with updated data: NRR has now been disclosed at or above ~120% for three consecutive quarters (Q2-Q4 2025), with the trough at 'high 110s' (likely ~117-119%) in Q1 2025. Even at the weakest recent point, NRR was 2-4pp above 115%. With Q4 confirmed, the market can only resolve YES if Q1 or Q2 2026 shows NRR below 115%. Fundamentally: gross retention ~96-97% provides a floor, and expansion would need to collapse from ~23pp to below ~18pp. With non-AI usage growth accelerating (23%, 12-quarter high), AI native cohort still expanding (12% of revenue and growing), and multi-product adoption deepening across all tiers, the expansion vectors are diversified and strengthening. RPO at $3.46B growing 52% provides contracted forward demand. A 5pp NRR decline in 1-2 quarters from a stable base has no historical precedent at Datadog.

Q4 2025 NRR confirmed at ~120%, removing one resolution quarter. Only Q1 and Q2 2026 remain. NRR has been stable at ~120% for three consecutive quarters with improving expansion metrics. Non-AI usage growth accelerated to 23% YoY, RPO grew to $3.46B (+52%), and record bookings of $1.63B signal continued momentum. Gross retention in mid-to-high 90s provides structural floor. A 5pp decline in 1-2 quarters without severe macro disruption is extremely unlikely.

Strong case for NO with updated data, but maintaining some tail risk probability. Q4 NRR stable at ~120% narrows the window to 2 quarters. Usage-based model could still face a sudden macro shock, and the 2022-23 cycle demonstrated volatility in consumption-based metrics. However, current expansion is supported by multiple vectors: accelerating non-AI usage (23%), AI cohort growth, and deepening multi-product adoption. Even in a stress scenario, the mid-to-high 90s gross retention floor means NRR would need the expansion component to nearly vanish. RPO and record bookings suggest forward demand is strong. Assigning 9% to account for unexpected severe events.

With Q4 2025 NRR at ~120% confirmed, this is now a question about whether NRR can drop 5pp in just 1-2 quarters from a level that has been sustained for 3 consecutive quarters. The math is stark: gross retention of ~96-97% means expansion contributes ~23-24pp to NRR. For NRR to hit 114%, expansion would need to fall to ~17-18pp — a 25-30% decline in the expansion component in a single quarter. Given that non-AI usage growth accelerated to 23% (highest in 12 quarters), AI native is the fastest-growing segment, and RPO provides multi-quarter forward visibility, this would require an extraordinary shock. Even the 2022-23 cloud optimization cycle didn't produce this magnitude of compression in a single quarter. Applying sibling calibration lesson to be more confident on clear NO outcomes.