Inflation soared throughout 2022, and it hit a 40-year high just a few months ago. This elevated inflation prompted an aggressive response from the U.S. Federal Reserve, which adjusted interest rates higher, often by 75 basis points at a time. That's triple the more traditional 25-basis-point move.
Naturally, these cost pressures have left people with less disposable income, and the reduction in spending is hurting the corporate sector. It's a key reason the Nasdaq-100 technology index lost 34% of its value this year.
But some companies focus on serving businesses, not consumers, and many of those happen to be outperforming. Datadog (DDOG -3.94%) just released its financial results for the third quarter (ended Sept. 30), and its strong results led the company to increase its guidance for the full year for a third straight time.
Wall Street is incredibly bullish on Datadog stock. Here's why one investment bank, in particular, thinks its stock price could soar by 133% over the next 12 to 18 months from its current price of $69.48.
Datadog is an essential tool for cloud-based operations
Picture a physical store for a moment. Customers walk in, select the goods they wish to buy, and check out via a human cashier. Assessing that customer's experience is quite easy for the person behind the counter. Did they appear happy? Dissatisfied? Angry? With a human cashier, resolving a problem is relatively straightforward.
But what if that same store had thousands of faceless customers interacting with it digitally? Cloud computing technology helps businesses to move their operations and sales channels online, which opens up their addressable market to thousands of new customers. But at the same time, maintaining a quality experience for all of them is much harder.
Datadog is a cloud monitoring platform that can alert businesses to problems with their online customer touchpoints in real time, whether they operate in retail, financial services, or even gaming. If a page is loading more slowly than usual, or even if only a small segment of customers is affected by a technical issue, Datadog can significantly cut down response times for those who can resolve the issue.
Additionally, it can learn from historical data to ensure websites can handle traffic spikes ahead of big events, like Cyber Monday, for example.
It means less downtime, which means fewer lost sales, and, ultimately, more satisfied customers.
Datadog had a blockbuster third quarter, in a blockbuster year so far
Datadog's third-quarter revenue grew by a whopping 61.4% year over year to $437 million. Its results for the first nine months of 2022 so far are even more impressive. It generated $1.2 billion in sales -- which represents a 71.6% jump compared to the same period in 2021.
Despite Datadog investing heavily in growth, including substantial increases in its marketing and research and development costs this year, it's still extremely close to profitability. It lost just $21 million in the first nine months of 2022, which is practically a break-even result considering how much revenue the company brought in.
Datadog's strong financial performances this year prompted it to lift its full-year sales guidance several times. At the conclusion of 2021, the company told investors it could deliver up to $1.53 billion in revenue during 2022, but it then raised that forecast in the first and second quarters, and now again in Q3, to $1.654 billion.
It makes Datadog one of just a handful of companies with an optimistic tone at the moment, because the tough economic environment has some of the largest technology giants in the U.S. slashing their previous estimates.
Image source: Getty Images.
Wall Street is bullish on Datadog stock
The Wall Street Journal tracks 32 analysts who cover Datadog stock, and not a single one recommends selling.
Of the group, 21 gave the stock the highest-possible buy rating, while the rest are split between overweight (bullish) and neutral ratings. It speaks volumes of Wall Street's confidence in Datadog, especially in the context of its recent financial results.
But how much upside could Datadog stock deliver? Analysts at investment bank Goldman Sachs think it could soar by 133% to $162 per share over the next 12 to 18 months.
Since more businesses are moving to the cloud, Datadog's addressable market is constantly growing. It already serves 2,600 large organizations that spend at least $100,000 annually with the company, which is up from 1,800 at this time last year.
Over the long term, Datadog stock could soar far higher than any Wall Street analyst is predicting today, so now might be a great time to take a position.
