What happened

Shares of Datadog (DDOG 0.48%) charged sharply higher Friday, surging as much as 16.2% and hitting a new all-time high in the process. As of 1:28 p.m. EDT, the stock was up 11.5%.

The catalyst that drove the cloud monitoring and security company higher was third-quarter financial results that far exceeded expectations. 

Three IT technicians looking at a computer monitor in a server room.

Image source: Getty Images.

So what

Datadog generated revenue of $270.5 million, up 75% year over year, squelching the idea that the stock was a "pandemic play." At the same time, the company delivered adjusted earnings per share (EPS) of $0.13, which surged 160%. 

To give those numbers context, analysts' consensus estimates were calling for revenue of $247.73 million and adjusted EPS of $0.06.

The fuel that drove the impressive financial results were equally strong client metrics. Total customers of 17,500 increased 34% year over year. More importantly, however, Datadog ended the quarter with 1,800 customers that generate annual recurring revenue (ARR) of $100,000 or more, up 66% year over year. These are Datadog's most important customers, as they contribute 80% of the company's ARR. 

Now what

Datadog gave investors another reason to cheer. The company significantly boosted its outlook going into the end of the year. Datadog now expects full-year revenue in a range of $993 million to $995 million, up from its previous guidance of $938 to $944 million. The company also boosted its bottom-line outlook, forecasting adjusted EPS in a range up $0.39 to $0.40, up from $0.27 at the midpoint of its previous guidance. 

Management's ability to "beat and raise" -- beating analysts' expectations, while simultaneously raising guidance -- was enough to send Datadog charging to new heights.

I'd be remiss if I didn't point out that the stock isn't cheap by traditional metrics, with a forward valuation of 61, when a reasonable price-to-sales ratio is generally considered to be between 1 and 2. That said, management is forecasting year-over-year revenue growth of 65%, which may well be conservative given its history. 

Investors with a stomach for a little volatility and a sufficiently long investing outlook might want to take this dog for a walk.