What happened

Shares of monitoring and analytics platform specialist Datadog (NASDAQ:DDOG) took a hit on Friday, declining nearly 5% by the time the market closed. At one point during the trading day, the stock was down 6.8%.

The stock's sharp decline comes as many other growth stocks were taking a breather today -- particularly stocks of companies that have benefited from stay-at-home trends during the coronavirus pandemic. In addition, Datadog stock may be resuming a sell-off that followed the company's earnings report earlier this week.

A chart showing a stock price falling

Image source: Getty Images.

So what

Despite reporting third-quarter revenue and adjusted earnings per share well ahead of analysts' estimates, the stock fell following the earnings release. The stock is down more than 7% since Datadog reported third-quarter results after market close on Tuesday.

Investors may have been concerned about the company's decelerating revenue growth and several analysts' decisions to downgrade their price targets for the stock. 

A broader-market decline for many growth stocks on Friday likely provided fuel for further investor skepticism toward Datadog shares at their current valuation.

Now what

Investors should keep in mind that decelerating growth rates are normal for fast-growing companies like Datadog. Further, it's worth noting that while growth has slowed, Datadog is still growing very rapidly. Third-quarter revenue was up 61% year over year.

Management was optimistic about Datadog's future in its third-quarter earnings release. "We continue to make meaningful [research and development] investments toward what is a very significant long-term opportunity," said Datadog co-founder and CEO Olivier Pomel.

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.