Most consumers have grown comfortable managing their lives online. The digital world has delivered so much convenience that it's hard to walk away from it -- whether we're talking about the fun stuff like shopping and entertainment or life's necessities, like banking and paying bills.
Companies have invested billions of dollars in delivering those online experiences to consumers. Why? Because when a business reduces friction, it becomes easier for customers to spend money. Plus, the internet is a major cost saver -- a business doesn't have to manage a physical store, and customers can purchase its products from anywhere in the world with the click of a button.
But it's not always smooth sailing. Building and maintaining a digital ecosystem comes with challenges, and that's why Datadog (DDOG -1.10%) is so popular. But Datadog's business customers aren't the only ones who love its platform; it has Wall Street's vote, too. According to The Wall Street Journal, not a single analyst recommends selling Datadog stock.
Here's why investors might want to take that as a cue to buy in now.
Datadog serves an increasingly important need
Cloud computing technology is what enables businesses to seamlessly migrate their operations, and their touchpoints with consumers, into the digital realm. Gone are the days when a business had to maintain its own expensive physical servers if it wanted to host a website; now, it can rent powerful data centers from cloud providers like Amazon Web Services (AWS) and Microsoft Azure for a fraction of the cost.
Datadog is a cloud monitoring platform. Here's why that's important. When a business runs a physical store inside a mall, for example, it's easy to sense the level of customer satisfaction. A shopper can provide immediate positive or negative feedback to the store attendant.
But with an online store, that same business is serving thousands of faceless customers, and it's nearly impossible to tell if they're having a good experience until it's too late. Often, a drop in sales is the only indicator because unhappy consumers can simply hop onto a competing website with a couple of clicks.
Datadog can quickly pinpoint areas of friction on a website or a mobile application. It's especially powerful when it comes to bugs -- sometimes, a specific segment of customers in one geographic location might be unable to access a business's online store, and that issue could go completely unnoticed until a later date when it becomes apparent there were no sales.
So Datadog constantly monitors the cloud network for those issues and immediately alerts the business when they arise. It's not just for e-commerce, either. Datadog monitors the cloud for thousands of customers in financial services, gaming, and even entertainment.
Datadog delivered a blockbuster year in 2022
Naturally, with more businesses adopting cloud services, demand for cloud monitoring tools is growing. So despite an economic slowdown in 2022, with the majority of the technology sector slashing its forecasts, Datadog had one of its best years ever and actually raised its revenue guidance three times.
But once Datadog's official 2022 results came in on Feb. 16, they still blew away the high end of its guidance. The company generated $1.68 billion in revenue (compared to $1.654 billion expected), which represented growth of 63% compared to 2021.
Datadog has now grown its annual revenue by 1,575% since 2017.
Larger organizations tend to have more complex cloud networks. As a result, the cohort of Datadog's customers spending at least $1 million per year soared 47% to 317 in 2022. That segment grew even more quickly than the number of customers in the $100,000 annual spend category, which expanded by 38%.
Wall Street is on board with Datadog stock
The Wall Street Journal currently tracks 37 analysts who cover Datadog stock. As a group, they're extremely bullish, with 23 of them giving the stock the highest possible buy rating. Six are in the overweight (bullish) camp, with eight recommending holding. Not a single analyst recommends selling.
On an even more positive note for investors, Datadog is operating on the cusp of profitability. The company has always focused on investing in growth at the expense of profits (and it's clearly working), so it generated a net loss of $50 million in 2022. But that's a tiny sum on $1.68 billion in revenue, and given there's $1.9 billion in cash, equivalents, and short-term investments on its balance sheet, an annual loss of that size is sustainable for several years to come.
Despite Datadog's incredible operational performance in 2022, its stock was still caught up in the broad sell-off in the technology sector. It remains down 58% from its all-time high, but with the vote of its customers and the majority of Wall Street analysts, investors might want to take this opportunity to buy it now.
