Week to date, shares of Datadog (DDOG 4.95%) were up 24% as of 11:33 a.m. ET on Thursday, according to data provided by S&P Global Market Intelligence. The cloud security provider reported a strong third quarter, with revenue up 25% year over year, leading management to raise its full-year guidance.
However, it wasn't so much the revenue growth but management's comments about usage trends on the platform that bolstered investor enthusiasm.
Why investors are rallying to the stock
During the earnings call, CEO Olivier Pomel noted signs that companies are starting to spend more on services after working to optimize their existing budget in recent quarters. This trend had been impacting the broader market for cloud services, but investors are getting a sense that 2024 could be a much stronger year of growth for Datadog.
Datadog added approximately 4,600 customers in the quarter, bringing the total to 26,800. There is strong demand from existing clients, as 46% of customers are now using four or more products, up from 40% a year ago.
Datadog can support its expensive valuation with profitable growth
Management is now calling for full-year revenue to be over $2.1 billion, representing growth of 26% over 2022. The company is seeing broad demand from new corporate clients, workloads, and new product launches added during the quarter.
The stock is still richly valued at around 16 times trailing revenue, but the company is also starting to post healthy adjusted operating margin. Management expects full-year adjusted operating profit to be between $453 million and $457 million. This cloud stock is more reasonably valued than it might otherwise appear.
