DigitalOcean cruises to another easy earnings beat
Shares of the developer-oriented cloud infrastructure provider DigitalOcean Holdings Inc. made strong gains during the regular trading session today, and continued to rise after-hours after delivering some solid second-quarter financial results.
The company reported earnings before certain costs such as stock compensation of 48 cents per share on $192.5 million sales in the quarter, up 13% from a year earlier. Those results easily surpassed Wall Street analysts’ consensus estimate of 39 cents per share in earnings and $188.6 million in sales.
With those results, DigitalOcean was able to boost its bottom line, reporting net income for the quarter of $19.4 million, up from a minuscule profit of just $665,000 in the same period one year earlier.
DigitalOcean Chief Executive Paddy Srinivasan (pictured) hailed what was a third successive earnings and revenue beat since taking over the reins of the company in January. “We delivered another strong quarter of business results and exciting product announcements,” he said. “We saw revenue growth continue to re-accelerate at 13%, with AI and machine learning continuing to accelerate, with annual recurring revenue up over 200% year-over-year.”
Investors reacted positively to the report, as DigitalOcean’s stock rose almost 4% in extended trading, adding to a gain of just over 5% earlier in the day.
DigitalOcean is a plucky rival to much larger public cloud infrastructure providers such as Amazon Web Services Inc., Microsoft Corp. and Google LLC. Rather than attempt to take on those giants directly, it has carved out a niche for itself as a boutique cloud plaform serving small businesses. The company operates what it likes to call a “developer cloud” that keeps things simple for smaller teams of developers.
Its main offering is the DigitalOcean App Platform, which allows developers to deploy application code in production with a few simple clicks. The company’s promise is that it takes care of all of the cloud infrastructure and deployment stuff, while developers simply focus on maintaining and updating their code.
One example of its developer-friendly nature is its GPU droplets offering, which provides access to Nvidia Corp.’s powerful H100 graphics processing units for artificial intelligence workloads. The offering is tailored to small businesses that likely need only short-term access to a small number of GPUs. In contrast, the large cloud providers have optimized their GPU services for much bigger enterprises.
That offering, along with the rest of its developer-friendly infrastructure, has kept DigitalOcean firing on all cylinders, and it showed decent growth across all of its key metrics. Its annual revenue run rate grew 15% from a year earlier, to $781 million, while its average revenue per customer increased by 9%, to $99.45, at the end of the quarter. The company also said that “builders and scalers,” a term for customers that spend more than $50 per month on its cloud services, increased their revenue contribution by 15% compared to a year earlier.
Holger Mueller of Constellation Research Inc. said DigitalOcean’s ongoing growth is being fuelled by innovation such as its improved access to Nvidia GPUs, Intel Xeon computing instances and other flexible infrastructure offerings.
“The revenue growth is impressive, but the return to profitability is the real achievement,” the analyst said. “Paddy Srinivasan and his team have transformed the company’s bottom line, resulting in a swing from a net loss of almost $70 million in the first six months of 2023, to a profit of $33 million in the first half of fiscal 2024. That’s an impressive turnaround and it’s exactly what investors wanted to see from the new CEO.”
The company expects the good times to continue. For the third quarter, it’s forecasting revenue of between $196 million and $197 million and earnings of 39 to 41 cents per share. Those numbers contrast with the Street’s consensus estimate of $195.2 million in sales and earnings of 41 cents per share.
For the full year, DigitalOcean slightly raised its outlook. It said it now sees revenue of between $765 million and $770 million, up from an earlier range of $770 million to $775 million. Full year earnings are forecast in a range of $1.60 to $1.70 per share. Wall Street is looking for full-year revenue of $769.6 million and earnings of just $1.64 per share.
Photo: DigitalOcean
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