DigitalOcean Posts Mixed Q1 Results; Shares Sink 8%

Cloud infrastructure services provider DigitalOcean Holdings, Inc. (NYSE: DOCN) recently reported mixed results for the first quarter ended March 31, 2022.

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Following the results, shares of the company declined 7.9% to close at $40.10 in Wednesday’s extended trading session.

Revenue & Earnings

DigitalOcean’s revenue for the quarter stood at $127.3 million, up 36% year-over-year. Further, the figure topped the consensus estimate of $126.33 million. The growth in revenues can be attributed to the year-over-year rise of 28% witnessed in the Average Revenue Per Customer (ARPU) at $68.90.

In the quarter, earnings of $0.07 per share grew 133.3% from the same quarter last year. However, the figure failed to surpass the consensus estimate of $0.12 per share.

Other Operating Metrics

DigitalOcean’s Annual Run-Rate Revenue witnessed a year-over-year increase of 35% to $524 million. Also, the company’s total customers grew 6% from the previous year to 623,000. Customers spending more than $50 per month rose 20% year-over-year to 102,000.

The company’s Net Dollar Retention Rate for the quarter stood at 117%, compared with 107% in the previous year.

Outlook

For the second quarter, the company forecasts revenues of $133 million to $135 million and earnings in the range of $0.09 to $0.10 per share.

For full-year 2022, the company’s revenue estimates are in the range of $564 to $568 million versus the consensus estimate of $566 million. Further, it expects earnings between $0.70 and $0.71 per share. The consensus estimate for the same is pegged at $0.67 per share.

Management Commentary

The CEO of DigitalOcean, Yancey Spruill, said, “Despite an uncertain macro environment, we had a good start to the year with strong growth and free cash flow. We are focused on broadening our product offerings, investing in our go-to-market capabilities, both to enable our customers’ success and drive consistent revenue growth combined with ramping free cash flow.”

Stock Rating

Consensus among analysts is a Strong Buy based on eight Buys and two Holds. DOCN’s average price target of $74.80 implies upside potential of 71.7% from current levels. Shares have declined 2.8% over the past year.

Investors’ Stance

TipRanks’ Stock Investors tool shows that investors currently have a Very Negative stance on DOCN, as 16.5% of portfolios tracked by TipRanks decreased their exposure to the stock over the past 30 days.

Conclusion

The decline in the stock price points to the fact that the company’s mixed results have disappointed investors. However, the company’s strong guidance for the second quarter and full-year 2022 will likely help restore investors’ sentiment.

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