Wall Street isn't pleased with Datadog's (NASDAQ:DDOG) latest quarter. The cloud-based provider of next-gen site analytics, uptime monitoring, and other essential enterprise tools opened lower on Wednesday after posting third-quarter results. Analysts aren't pleased with the performance: 

  • Barclays is slashing its price target from $136 to $115. 
  • Mizuho joins Barclays at $115. Its previous price goal was $125.
  • Sterling Auty at J.P. Morgan is downgrading the stock to neutral. 

Growth is slowing at Datadog, but the company still came through with a textbook "beat-and-raise" quarter. This is still a fast-growing company building out its ecosystem with satisfied customers all in on the process. Datadog is better than the market's response to its latest financials. Let's see why Datadog doesn't deserve to be in the doghouse.

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Image source: Getty Images.

Growth matters

Revenue rose 61% to $154.7 million, ahead of the 50% top-line growth that the pros were forecasting. Datadog's adjusted profit of $0.05 a share was a fivefold improvement over Wall Street's target. The slipping tech darling is boosting its full-year outlook, and its initiated guidance for the current quarter is also ahead of analyst consensus estimates. 

Datadog stock was already 22% below the all-time high it hit just last month before Wednesday's reaction to the earnings news. It's fair to say that Datadog is not a cheap stock, commanding a trailing revenue multiple that is roughly 50 times its enterprise value. Billings decelerated to a record-low 39% in this week's report. There is still a lot to like here. 

Its dollar-based net retention rate has clocked in at 130% or higher for 13 consecutive quarters. Its customer count has expanded to 13,100 customers, adding about 1,000 new customers during the quarter. More importantly, its largest customers are even more fanatical about the platform. Accounts with annual revenue run rates of at least $100,000 or more -- a group of high rollers accounting for 75% of its business -- have risen from 727 to 1,107 over the past year.  

It announced eight new products over the summer at its annual user conference, and its most active customers don't mind leaning more and more on Datadog. Over the past year we've seen the 7% of its customers using at least four of its products grow to 20% of its customer base. 

Even with the stock slipping in recent weeks it's still a winner since going public at $27 just 14 months ago. Investing in IPO stocks is always going to be risky, but you won't see early believers complaining about an investment that has more than tripled since hitting the market. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.