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DigitalOcean Holdings (DOCN)
NYSE:DOCN
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DigitalOcean Holdings
(NYSE:DOCN)
61Neutral
Positive Factors
AI Strategy
Revenue in the AI/ML segment grew over 160% YoY, indicating the potential of DigitalOcean's AI strategy as a meaningful growth driver.
Customer Retention
Customer retention and high-value customer segments showed improvement with Net Dollar Retention reaching 99%.
Negative Factors
Earnings Estimates
The 2025 and 2026 non-GAAP EPS estimates were lowered despite the expected revenue growth.
Free Cash Flow Concerns
Concerns remain that a weak SMB market and increased capex and AI investments can lead to FCF pressure.
DigitalOcean Holdings (DOCN) vs. S&P 500 (SPY)
Market Cap
$2.64B
Dividend YieldN/A
Average Volume (3M)1.47M
Price to Earnings (P/E)33.0
Beta (1Y)1.98
Revenue Growth12.66%
EPS Growth2097.85%
CountryUS
Employees1,210
SectorTechnology
Sector Strength40
IndustrySoftware - Infrastructure
Share Statistics
EPS (TTM)0.87
Shares Outstanding92,067,800
10 Day Avg. Volume1,274,080
30 Day Avg. Volume1,473,740
Financial Highlights & Ratios
PEG Ratio0.02
Price to Book (P/B)N/A
Price to Sales (P/S)4.35
Price to Cash Flow (P/CF)11.90
P/FCF Ratio11.70
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$45.40Price Target Upside58.46% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering12
DigitalOcean Holdings Business Overview & Revenue Model
Company DescriptionDigitalOcean Holdings, Inc., through its subsidiaries, operates a cloud computing platform in North America, Europe, Asia, and internationally. Its platform provides on-demand infrastructure and platform tools for developers, start-ups, and small and medium size businesses. The company offers infrastructure solutions across compute, storage, and networking, as well as enables developers to extend the native capabilities of its cloud with fully managed application, container, and database offerings. Its users include software engineers, researchers, data scientists, system administrators, students, and hobbyists. The company's customers use its platform in various industry verticals and for a range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and others. DigitalOcean Holdings, Inc. was incorporated in 2012 and is headquartered in New York, New York.
How the Company Makes MoneyDigitalOcean Holdings generates revenue primarily through its Infrastructure as a Service (IaaS) offerings. The company charges customers for the use of its cloud computing resources, which include virtual machines known as Droplets, block storage, object storage, and Kubernetes-based orchestration solutions. Customers pay based on the resources they consume, often on a pay-as-you-go basis, though subscription options are also available for predictable workloads. Additionally, DigitalOcean offers managed databases and developer support services, which contribute to its revenue streams. Partnerships with various software and application development companies enhance the platform's ecosystem, attracting more users and expanding service offerings, further boosting revenue.
DigitalOcean Holdings Financial Statement Overview
Summary
Strong revenue growth and operational efficiency are evident, with improving profit margins and cash flows. However, the negative equity position and potential financial instability present significant concerns. The company needs to address its leverage and equity situation to ensure long-term sustainability.Income Statement
DigitalOcean Holdings has shown strong revenue growth, with a significant increase from $318.38 million in 2020 to $780.62 million in 2024. The gross profit margin has been robust, consistently above 50%, indicating efficient cost management. However, the net profit margin has been volatile, although it turned positive in recent years, reaching 10.82% in 2024. The EBIT and EBITDA margins have improved, reflecting enhanced operational efficiency.75
Positive
Balance Sheet
The balance sheet shows a concerning negative stockholders' equity, at -$202.96 million in 2024, which could indicate financial instability. The debt-to-equity ratio is not meaningful due to negative equity. Despite this, the company has maintained liquidity with cash and short-term investments of $428.45 million in 2024. The return on equity is negative due to the negative equity, which presents a risk.45
Neutral
Cash Flow
DigitalOcean Holdings has demonstrated strong operating cash flow growth, reaching $282.73 million in 2024. The free cash flow has also improved significantly, showing a positive trend. The operating cash flow to net income ratio is favorable, indicating good cash generation relative to earnings. However, the heavy investment in capital expenditures and fluctuating investing cash flows pose potential risks.70
Positive
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 780.62M | 692.88M | 576.32M | 428.56M | 318.38M | Gross Profit |
| 465.94M | 408.92M | 364.39M | 257.97M | 172.85M | EBIT |
| 91.01M | 11.90M | -15.60M | -11.02M | -28.79M | EBITDA |
| 91.01M | 153.59M | 86.74M | 73.92M | 46.22M | Net Income Common Stockholders |
| 84.49M | 19.41M | -24.28M | -19.50M | -43.57M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 428.45M | 411.77M | 864.23M | 1.71B | 100.31M | Total Assets |
| 1.64B | 1.46B | 1.82B | 2.10B | 430.25M | Total Debt |
| 1.70B | 1.66B | 1.64B | 1.46B | 259.68M | Net Debt |
| 1.27B | 1.34B | 1.50B | -250.71M | 159.37M | Total Liabilities |
| 1.84B | 1.77B | 1.76B | 1.52B | 502.35M | Stockholders Equity |
| -202.96M | -313.70M | 51.09M | 578.20M | -72.09M |
| Cash Flow | Free Cash Flow | |||
| 96.20M | 110.13M | 74.94M | 24.02M | -57.55M | Operating Cash Flow |
| 282.73M | 234.94M | 195.15M | 133.11M | 58.12M | Investing Cash Flow |
| -94.81M | 401.15M | -1.15B | -113.61M | -115.49M | Financing Cash Flow |
| -76.45M | -468.90M | -610.36M | 1.59B | 124.03M |
DigitalOcean Holdings Technical Analysis
Negative
28.65
Price Trends
39.56
Negative
38.31
Negative
37.68
Negative
Market Momentum
-1.52
Positive
35.53
Neutral
20.47
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DOCN, the sentiment is Negative. The current price of 28.65 is below the 20-day moving average (MA) of 35.39, below the 50-day MA of 39.56, and below the 200-day MA of 37.68, indicating a bearish trend. The MACD of -1.52 indicates Positive momentum. The RSI at 35.53 is Neutral, neither overbought nor oversold. The STOCH value of 20.47 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for DOCN.
DigitalOcean Holdings Risk Analysis
DigitalOcean Holdings disclosed 58 risk factors in its most recent earnings report. DigitalOcean Holdings reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
DigitalOcean Holdings Peers Comparison
Overall Rating
UnderperformOutperform
Sector (57)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
72 Outperform | $4.29B | 22.19 | 189.40% | ― | 5.05% | 103.11% | |
67 Neutral | $10.77B | 22.58 | 10.66% | ― | 4.70% | -7.33% | |
61 Neutral | $2.64B | 32.95 | -41.63% | ― | 12.66% | 2097.85% | |
57 Neutral | $18.57B | 9.42 | -13.42% | 2.72% | 5.01% | -23.43% | |
55 Neutral | $33.50B | ― | -8.71% | ― | 28.76% | 58.13% | |
54 Neutral | $1.71B | 79.38 | 2.97% | ― | 9.68% | ― | |
48 Neutral | $734.27M | ― | -16.25% | ― | 7.45% | -10.76% |
* Technology Sector Average
Performance Comparison
DOCN
DigitalOcean Holdings
28.65
-8.83
-23.56%
VNET
VNET Group, Inc. Sponsored ADR
6.39
4.59
255.00%
AKAM
Akamai
73.69
-32.13
-30.36%
BOX
Box
29.81
2.02
7.27%
FSLY
Fastly
5.16
-8.35
-61.81%
NET
Cloudflare
97.08
1.75
1.84%
DigitalOcean Holdings Earnings Call Summary
Earnings Call Date: Feb 25, 2025 | % Change Since: -22.92% | Next Earnings Date: May 1, 2025
Earnings Call Sentiment Positive
The earnings call depicted a strong performance by DigitalOcean in Q4 2024, with significant revenue growth and improvements in net dollar retention. The company's strategic focus on product innovation and AI/ML platform success was highlighted as key drivers for future growth. Despite initial gross margin impacts due to new data center investments, profitability remained strong. The overall sentiment is positive, driven by growth achievements and strategic progress.Highlights
Record Revenue Growth in Q4 2024
Revenue growth accelerated in the fourth quarter to 13% year-over-year, reaching $205 million. Annual run rate revenue (ARR) reached $820 million, showing an increase in incremental ARR from $24 million in Q3 to $26 million in Q4.
Net Dollar Retention Improvement
Net dollar retention (NDR) improved to 99% in Q4 2024, up from 96% in Q4 of the prior year. The NDR for traditional cloud services reached 100% for the first time since June 2023.
Strong Growth in Scalers+ Cohort
The Scalers+ customer cohort, representing 22% of overall revenue, grew 37% year-over-year. The number of Scalers+ customers increased by 17% year-over-year, with a revenue increase of 37%.
AI/ML Platform Success
AI/ML platform exceeded expectations with Q4 showing over 160% ARR growth. AI-related solutions contributed significantly to revenue growth.
Profitability and Cash Flow
Adjusted EBITDA margin was healthy at 42% for both Q4 and the full year, with adjusted free cash flow margin at 18% for Q4.
Lowlights
Challenges in Customer Expansion
Despite improvements, customer expansion is still transitioning from a headwind to a tailwind, with the focus on improving net dollar retention as a growth driver.
Initial Gross Margin Impact
The upcoming Atlanta data center and investments in AI/ML infrastructure may initially impact gross margins, causing a slight dip before recovery.
Company Guidance
In the recent earnings call for DigitalOcean's fourth quarter and full year 2024, the company reported strong financial performance and provided guidance for 2025. Key metrics included a revenue growth of 13% year-over-year in Q4, reaching $205 million, with a net dollar retention (NDR) improving to 99% from 96% in the previous year. The company also highlighted the growth of their Scalers+ customer cohort, which increased by 17% year-over-year and accounted for 22% of total revenue, with a 37% increase in revenue from these customers. DigitalOcean's AI/ML platform exceeded expectations, contributing over 160% ARR growth in Q4. The company maintained healthy profitability, delivering 42% adjusted EBITDA margins both for Q4 and the full year. Looking ahead, DigitalOcean's 2025 guidance projects full-year revenue growth in the low to mid-teens and free cash flow margins above 15% to 17%, driven by both customer acquisition and expansion efforts, alongside ongoing investments in key growth initiatives such as their AI/ML platform and new data center in Atlanta.DigitalOcean Holdings Corporate Events
Executive/Board ChangesShareholder Meetings
DigitalOcean Board Member Christopher Merritt to Step Down
Neutral
Mar 28, 2025
On March 26, 2025, Christopher Merritt, a member of the Board of Directors of DigitalOcean Holdings, Inc., announced his decision not to stand for reelection at the company’s 2025 Annual Meeting of Stockholders. His decision was not due to any disagreements with the company, and he will continue to serve on the Board until the Annual Meeting.
Executive/Board ChangesBusiness Operations and StrategyFinancial Disclosures
DigitalOcean Board Member Amy Butte Steps Down
Positive
Feb 25, 2025
On February 21, 2025, Amy Butte announced she will not seek reelection to DigitalOcean’s Board of Directors at the 2025 Annual Meeting, having contributed to the company’s transition to a public entity since 2018. DigitalOcean reported strong financial results for Q4 and fiscal year 2024, with a 13% increase in revenue year-over-year and a significant rise in net income. The company released numerous new products, focusing on AI and cloud solutions, and demonstrated growth in its customer base, particularly among higher-spend clients. These developments underscore DigitalOcean’s strategic progress and its leading position in the cloud industry.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.