Core Viewpoint - DigitalOcean Holdings, Inc. (DOCN) has received an upgrade to a Zacks Rank 2 (Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][4]. Earnings Estimates and Ratings - The Zacks rating system is centered around the changing earnings picture, tracking the Zacks Consensus Estimate for EPS from sell-side analysts for the current and following years [2]. - A strong correlation exists between changes in earnings estimates and near-term stock price movements, making the Zacks rating system valuable for investors [3][5]. Impact of Institutional Investors - Institutional investors utilize earnings estimates to determine the fair value of stocks, leading to buying or selling actions that affect stock prices [5]. DigitalOcean's Earnings Outlook - The recent upgrade for DigitalOcean reflects an improvement in its underlying business, with rising earnings estimates expected to drive the stock price higher [6]. - DigitalOcean is projected to earn $2.02 per share for the fiscal year ending December 2025, with a 2.7% increase in the Zacks Consensus Estimate over the past three months [9]. Zacks Rank System Performance - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [8]. - DigitalOcean's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [11].

Core Insights - DigitalOcean reported Q2 2025 GAAP revenue of $219 million, exceeding analyst expectations of $216.62 million, with a non-GAAP EPS of $0.59, surpassing the estimate of $0.47, indicating strong year-over-year growth and profitability [1][5][11] Financial Performance - Q2 2025 non-GAAP EPS was $0.59, a 22.9% increase from $0.48 in Q2 2024 [2] - Revenue for Q2 2025 was $219 million, reflecting a 13.8% increase from $192.5 million in Q2 2024 [2] - Net income for Q2 2025 was $37 million, a 93.7% increase year-over-year, with a net income margin rising from 10% to 17% [2][5] - Adjusted EBITDA reached $89.5 million, maintaining a 41% margin [2][5] - Adjusted free cash flow increased to $57 million, up 52.4% from the previous year [2][9] Customer Segmentation and Growth - Revenue from high-spend customers, termed "Scalers+", grew by 35% year-over-year, now accounting for 24% of total revenue [6] - Average revenue per customer (ARPU) for Scalers+ increased to $30,000, a 9% rise year-over-year, while overall ARPU grew by 12% [6] - The number of Scalers+ customers increased by 23%, with a net dollar retention rate improving to 99% from 97% [6] Product Development and Market Position - DigitalOcean launched over 60 new products and features, including the DigitalOcean Gradient AI Platform and new GPU droplets powered by AMD [6][7] - AI/ML-related revenue more than doubled year-over-year, although specific figures were not disclosed [6] Strategic Initiatives - The company expanded dedicated account management to its top 3,000 clients, enhancing customer support and retention [8] - DigitalOcean is exploring new funding tools, such as leasing, to support cash flow while expanding capacity [10] Future Guidance - For Q3 2025, revenue is projected at $226–227 million, with an adjusted EBITDA margin of 39–40% [11] - Full-year FY2025 revenue guidance was raised to $888–892 million, with expected non-GAAP diluted net income per share of $2.05–$2.10 [11]

Group 1 - DigitalOcean (NYSE: DOCN) reported strong earnings results, slightly beating revenue guidance and showing significant growth in AI/ML product offerings [1] - The company has a leveraged balance sheet and faces challenges in competitive positioning [1] Group 2 - The investing group led by Julian focuses on stocks with a high probability of delivering alpha relative to the S&P 500, emphasizing growth-oriented principles and strict valuation hurdles [1] - Julian Lin seeks undervalued companies with secular growth potential, prioritizing strong balance sheets and management teams in sectors with long growth runways [1]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of DigitalOcean Holdings, Inc [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements of DigitalOcean Holdings, Inc. for the periods ended June 30, 2025, and December 31, 2024 (balance sheets), and for the three and six months ended June 30, 2025 and 2024 (statements of operations, comprehensive income, stockholders' deficit, and cash flows), along with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's financial position shows an increase in total assets and liabilities, with an improved stockholders' deficit | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $1,719,808 | $1,639,015 | | Total liabilities | $1,895,025 | $1,841,970 | | Total stockholders' deficit | $(175,217) | $(202,955) | - Total assets increased by **$80.8 million** from December 31, 2024, to June 30, 2025, while total liabilities increased by **$53.0 million**[15](index=15&type=chunk) - The stockholders' deficit improved from **$(202,955) thousand** to **$(175,217) thousand**[15](index=15&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported significant revenue growth and a more than doubling of net income for both the three-month and six-month periods year-over-year | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $218,700 | $192,476 | $429,403 | $377,206 | | Gross profit | $130,945 | $114,148 | $260,389 | $223,296 | | Income from operations| $35,619 | $22,328 | $73,261 | $33,866 | | Net income | $37,027 | $19,138 | $75,231 | $33,277 | | Basic EPS | $0.41 | $0.21 | $0.82 | $0.37 | | Diluted EPS | $0.39 | $0.20 | $0.77 | $0.35 | - Revenue increased by **13.6% YoY** for the three months ended June 30, 2025, and by **13.8% YoY** for the six months ended June 30, 2025[17](index=17&type=chunk) - Net income more than doubled for both the three-month and six-month periods year-over-year[17](index=17&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income saw a substantial increase, primarily driven by higher net income and positive foreign currency translation adjustments in 2025 | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $37,027 | $19,138 | $75,231 | $33,277 | | Other comprehensive income (loss) | $606 | $14 | $906 | $(125) | | Comprehensive income | $37,633 | $19,152 | $76,137 | $33,152 | - Comprehensive income significantly increased, driven by higher net income and positive foreign currency translation adjustments in 2025 compared to 2024[20](index=20&type=chunk) [Condensed Consolidated Statements of Stockholders' Deficit](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Deficit) The total stockholders' deficit decreased, primarily due to net income, partially offset by share repurchases and a decrease in additional paid-in capital | Metric (in thousands) | Balance at Dec 31, 2024 | Balance at June 30, 2025 | | :-------------------- | :---------------------- | :----------------------- | | Common Stock Amount | $2 | $2 | | Additional Paid-In Capital | $57,282 | $8,883 | | Accumulated Other Comprehensive Loss | $(1,497) | $(591) | | Accumulated Deficit | $(258,742) | $(183,511) | | Total Stockholders' Deficit | $(202,955) | $(175,217) | - The total stockholders' deficit decreased from **$(202,955) thousand** at December 31, 2024, to **$(175,217) thousand** at June 30, 2025, primarily due to net income attributable to common stockholders of **$75,231 thousand**, partially offset by share repurchases and a decrease in additional paid-in capital[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased, but net cash used in investing and financing activities rose significantly due to increased capital expenditures and share repurchases | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $156,537 | $138,033 | | Net cash (used in) provided by investing activities | $(100,407) | $12,095 | | Net cash used in financing activities | $(96,876) | $(24,193) | | (Decrease) increase in cash, cash equivalents and restricted cash | $(40,701) | $125,874 | - Net cash provided by operating activities increased by **$18.5 million** YoY[28](index=28&type=chunk) - Net cash used in investing activities significantly increased to **$(100.4) million** in 2025 from a positive **$12.1 million** in 2024[28](index=28&type=chunk) - Net cash used in financing activities also increased substantially due to higher share repurchases[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's business, significant accounting policies, and specific financial statement line items [Note 1. Nature of the Business and Organization](index=11&type=section&id=Note%201.%20Nature%20of%20the%20Business%20and%20Organization) DigitalOcean Holdings, Inc. is a cloud computing platform offering IaaS, PaaS, SaaS, and a comprehensive AI/ML platform, continuously investing to penetrate growing markets - DigitalOcean Holdings, Inc. is a cloud computing platform offering IaaS, PaaS, SaaS, and a comprehensive AI/ML platform (DigitalOcean Gradient™ AI Agentic Cloud) including GPU Droplets, Bare Metal GPUs, Gradient AI Platform (LLMs), and Gradient AI Agents[34](index=34&type=chunk) - The company continues to invest in its platform to penetrate growing markets[34](index=34&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) The company reclassified certain personnel costs to cost of revenue for better comparability and is evaluating the impact of new FASB ASUs on financial disclosures - The company reclassified personnel costs related to customer support and certain other costs from sales and marketing and R&D to cost of revenue starting Q4 2024 to better reflect costs and improve comparability with peers[37](index=37&type=chunk)[38](index=38&type=chunk) - This reclassification did not impact income from operations, net income, or EPS[37](index=37&type=chunk)[38](index=38&type=chunk) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Cash and cash equivalents | $387,745 | $443,110 | | Restricted cash | $1,747 | $1,747 | | Total cash, cash equivalents and restricted cash | $389,492 | $444,857 | - The allowance for expected credit losses increased from **$5,940 thousand** at December 31, 2024, to **$6,066 thousand** at June 30, 2025, with a provision of **$8,607 thousand** and write-offs of **$8,481 thousand**[42](index=42&type=chunk) - The company is evaluating the impact of new FASB ASUs 2023-09 (Income Tax Disclosures, effective after Dec 15, 2024) and 2024-03/2025-01 (Expense Disaggregation Disclosures, effective after Dec 15, 2026/2027) on its financial disclosures[43](index=43&type=chunk)[44](index=44&type=chunk) [Note 3. Revenue](index=13&type=section&id=Note%203.%20Revenue) Revenue growth was observed across customer categories and geographical regions, with an increase in deferred revenue and remaining performance obligations | Customer Category (3 Months Ended June 30) | 2025 Amount (in thousands) | 2025 % of Revenue | 2024 Amount (in thousands) | 2024 % of Revenue | | :----------------------------------------- | :------------------------- | :---------------- | :------------------------- | :---------------- | | Builders | $62,789 | 29% | $58,466 | 30% | | Scalers | $78,986 | 36% | $69,937 | 36% | | Scalers+ | $53,052 | 24% | $39,257 | 21% | | Learners, Testers and Other | $23,873 | 11% | $24,816 | 13% | | Total | $218,700 | 100% | $192,476 | 100% | | Geographical Revenue (3 Months Ended June 30) | 2025 Amount (in thousands) | 2025 % of Revenue | 2024 Amount (in thousands) | 2024 % of Revenue | | :-------------------------------------------- | :------------------------- | :---------------- | :------------------------- | :---------------- | | North America | $79,560 | 37% | $73,682 | 38% | | Europe | $59,660 | 27% | $54,565 | 28% | | Asia | $50,752 | 23% | $44,345 | 23% | | Rest of the world | $28,728 | 13% | $19,884 | 11% | | Total | $218,700 | 100% | $192,476 | 100% | - Deferred revenue increased from **$5,397 thousand** at December 31, 2024, to **$11,264 thousand** at June 30, 2025[50](index=50&type=chunk) - The aggregate transaction price for remaining performance obligations was **$53,402 thousand** as of June 30, 2025, with a weighted-average remaining life of **1.9 years**[53](index=53&type=chunk) [Note 4. Fair Value Measurements](index=15&type=section&id=Note%204.%20Fair%20Value%20Measurements) The fair value of convertible notes increased, while interest income from investments decreased year-over-year | Financial Instrument (in thousands) | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | Dec 31, 2024 Carrying Value | Dec 31, 2024 Fair Value | | :---------------------------------- | :----------------------------- | :----------------------- | :-------------------------- | :---------------------- | | Convertible Notes | $1,489,164 | $1,400,625 | $1,485,366 | $1,344,375 | - Interest income from investments decreased from **$5,128 thousand** in Q2 2024 to **$3,202 thousand** in Q2 2025, and from **$10,402 thousand** in H1 2024 to **$6,859 thousand** in H1 2025[56](index=56&type=chunk) [Note 5. Balance Sheet Details](index=16&type=section&id=Note%205.%20Balance%20Sheet%20Details) Property and equipment, net, increased due to investments in servers, while depreciation expense decreased year-over-year | Property and Equipment, Net (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------------------- | :------------ | :---------------- | | Servers and related equipment | $909,179 | $833,893 | | Internal-use software | $99,259 | $94,981 | | Property and equipment, gross | $1,021,426 | $949,555 | | Less: accumulated depreciation | $(474,163) | $(439,664) | | Less: accumulated amortization | $(81,742) | $(77,347) | | Property and equipment, net | $465,521 | $432,544 | - Property and equipment, net, increased by **$32.9 million** from December 31, 2024, to June 30, 2025, primarily driven by an increase in servers and related equipment[59](index=59&type=chunk) - Depreciation expense for property and equipment decreased YoY for both the three-month and six-month periods[59](index=59&type=chunk) | Other Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Prepaid expenses, long term | $7,892 | $5,353 | | Deferred financing fees | $5,109 | $782 | | Other assets | $15,042 | $8,537 | [Note 6. Debt](index=17&type=section&id=Note%206.%20Debt) The company issued $1.5 billion in convertible notes and established a new $500 million term loan and $300 million revolving credit facility, replacing a previous facility - The company issued **$1.5 billion** in 0% Convertible Senior Notes due December 1, 2026[62](index=62&type=chunk) - Amortization of deferred financing fees was **$1,900 thousand** for Q2 2025 and **$3,798 thousand** for H1 2025[62](index=62&type=chunk) - On May 5, 2025, DigitalOcean entered into a new **$500 million** senior secured delayed draw term loan facility and a **$300 million** senior secured revolving credit facility (2025 Credit Facility), maturing on May 5, 2030[64](index=64&type=chunk)[67](index=67&type=chunk) - The proceeds from the Term Loan Facility are specifically for repurchasing Convertible Notes[64](index=64&type=chunk)[67](index=67&type=chunk) - In connection with the 2025 Credit Facility, the company incurred **$4,560 thousand** in issuance fees[68](index=68&type=chunk)[69](index=69&type=chunk) - As of June 30, 2025, there were no outstanding borrowings under the 2025 Credit Facility[68](index=68&type=chunk)[69](index=69&type=chunk) - The previous 2022 Credit Facility was terminated on May 5, 2025, upon the entry into the new 2025 Credit Facility[71](index=71&type=chunk) [Note 7. Commitments and Contingencies](index=18&type=section&id=Note%207.%20Commitments%20and%20Contingencies) The company has estimated undiscounted fixed payment obligations for uncommenced leases and an outstanding letter of credit related to an office space lease - As of June 30, 2025, the company had **$3,218 thousand** in estimated undiscounted fixed payment obligations for uncommenced leases, primarily for data center co-location space, expected to begin between July and September 2025 with a weighted-average lease term of **3.6 years**[73](index=73&type=chunk) - A letter of credit for **$1,747 thousand** related to an office space operating lease was outstanding as of June 30, 2025, with no draws made[74](index=74&type=chunk) [Note 8. Stockholders' Equity](index=18&type=section&id=Note%208.%20Stockholders%27%20Equity) Under the 2024 Share Buyback Program, the company repurchased and retired a significant number of shares during Q2 and H1 2025 - Under the 2024 Share Buyback Program, the company repurchased and retired **691,290 shares** for **$20,147 thousand** in Q2 2025, and **2,255,544 shares** for **$79,199 thousand** in H1 2025[76](index=76&type=chunk)[77](index=77&type=chunk) - The program is authorized for up to **$140 million** through fiscal year 2025[76](index=76&type=chunk)[77](index=77&type=chunk) [Note 9. Stock-Based Compensation](index=19&type=section&id=Note%209.%20Stock-Based%20Compensation) Significant shares remain available for grant under equity incentive plans, with substantial unrecognized stock-based compensation for RSUs and PRSUs - As of June 30, 2025, there were **25,512,131 shares** available for grant under the 2021 Equity Incentive Plan and **5,202,269 shares** available under the ESPP[78](index=78&type=chunk)[87](index=87&type=chunk) - Unrecognized stock-based compensation was **$131,757 thousand** for RSUs (**2.7 years** weighted-average period) and **$6,474 thousand** for PRSUs (**2.6 years** weighted-average period) as of June 30, 2025[83](index=83&type=chunk) | Stock-Based Compensation (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $1,422 | $1,611 | $2,817 | $2,987 | | Research and development | $9,456 | $8,480 | $17,725 | $17,468 | | Sales and marketing | $3,089 | $2,610 | $5,635 | $5,935 | | General and administrative | $7,114 | $9,132 | $14,336 | $18,320 | | Total | $21,081 | $21,833 | $40,513 | $44,710 | [Note 10. Net Income per Share Attributable to Common Stockholders](index=20&type=section&id=Note%2010.%20Net%20Income%20per%20Share%20Attributable%20to%20Common%20Stockholders) Diluted EPS increased significantly year-over-year for both the three-month and six-month periods, with convertible notes contributing to potential dilution | EPS Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.41 | $0.21 | $0.82 | $0.37 | | Diluted EPS| $0.39 | $0.20 | $0.77 | $0.35 | - Diluted EPS increased significantly from **$0.20 to $0.39** YoY for the three months ended June 30, 2025, and from **$0.35 to $0.77** YoY for the six months ended June 30, 2025[89](index=89&type=chunk) | Potentially Dilutive Securities (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock Options | 689 | 1,573 | 812 | 1,751 | | RSUs | 392 | 880 | 711 | 1,133 | | PRSUs | 36 | 61 | 57 | 72 | | Convertible Notes | 8,403 | — | 8,403 | — | [Note 11. Income Taxes](index=21&type=section&id=Note%2011.%20Income%20Taxes) The effective tax rate decreased in 2025 due to a full U.S. valuation allowance and other factors, with a possibility of future deferred tax asset realization | Income Tax Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $(5,421) | $(5,671) | $(8,597) | $(5,787) | | Effective tax rate | 12.8% | 22.9% | 10.3% | 14.8% | - The effective tax rate decreased in 2025 compared to 2024, primarily due to a full valuation allowance in the U.S., mix of foreign income, excess tax benefits from stock-based compensation, and R&D credits[93](index=93&type=chunk)[95](index=95&type=chunk) - The company is not currently subject to OECD Pillar Two global minimum tax[93](index=93&type=chunk)[95](index=95&type=chunk) - The company believes there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to support the realization of deferred tax assets, potentially leading to a release of the valuation allowance and a decrease in income tax expense[96](index=96&type=chunk) [Note 12. Segment and Geographical Information](index=22&type=section&id=Note%2012.%20Segment%20and%20Geographical%20Information) DigitalOcean operates as a single segment, with long-lived assets primarily located in the United States - DigitalOcean operates as a single operating and reporting segment, with the CEO assessing performance based on consolidated results against the annual operating plan[98](index=98&type=chunk) | Long-Lived Assets, Net (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | United States | $498,444 | $381,708 | | Netherlands | $76,240 | $76,707 | | Germany | $45,797 | $44,489 | | Canada | $35,690 | $32,688 | | Other | $78,483 | $84,829 | | Total | $734,654 | $620,421 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on DigitalOcean's financial condition and results of operations, highlighting key business metrics, factors affecting performance, and a detailed comparison of financial results for the three and six months ended June 30, 2025, and 2024, along with discussions on liquidity, capital resources, and non-GAAP financial measures [Overview](index=22&type=section&id=Overview) DigitalOcean is a leading cloud computing platform offering IaaS, PaaS, SaaS, and AI/ML services, with a focus on simplicity, scalability, and approachability, and a growing customer base entering committed contracts - DigitalOcean is a leading cloud computing platform offering IaaS, PaaS, SaaS, and AI/ML services, including DigitalOcean Gradient™ AI Agentic Cloud[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - The company focuses on simplicity, scalability, and approachability as key differentiators[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Revenue is primarily generated from consumption-based cloud computing platform usage[106](index=106&type=chunk) - A growing number of customers are entering into committed contracts for larger workloads[106](index=106&type=chunk) - Higher Spend Customers (Builders, Scalers, Scalers+) represented **89%** of total revenue in Q2 2025, up from **87%** in Q2 2024[108](index=108&type=chunk) - The number of Higher Spend Customers increased to approximately **174,000** as of June 30, 2025, from **160,000** as of June 30, 2024[108](index=108&type=chunk) - ARPU increased from **$99.45** in Q2 2024 to **$111.70** in Q2 2025[109](index=109&type=chunk)[110](index=110&type=chunk) - ARR as of June 30, 2025, was **$875 million**, up from **$770 million** as of June 30, 2024[109](index=109&type=chunk)[110](index=110&type=chunk) [Key Factors Affecting Our Performance](index=24&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) The company focuses on increasing usage by existing customers, growing Higher Spend Customers through strategic initiatives, investing in platform offerings, and pursuing partnerships and acquisitions - The company aims to increase usage by existing customers through understanding their needs, increasing feature velocity, shaping product roadmap for Higher Spend Customers, and introducing account management[114](index=114&type=chunk) - Net Dollar Retention (NDR) increased from **97%** in Q2 2024 to **99%** in Q2 2025[114](index=114&type=chunk) - Strategies to grow Higher Spend Customers include new marketing initiatives, enhanced R&D, a new migration services team, and a dedicated AI sales team[115](index=115&type=chunk) - DigitalOcean continues to invest in its platform and product offerings, particularly in IaaS, PaaS/SaaS, and AI/ML, to meet the evolving needs of digital native enterprises[116](index=116&type=chunk)[117](index=117&type=chunk) - Strategic partnerships and acquisitions, such as with Hugging Face, are pursued to accelerate platform, product, and marketing initiatives and expand product offerings[119](index=119&type=chunk) [Key Business Metrics](index=25&type=section&id=Key%20Business%20Metrics) Higher Spend Customers are a critical focus, representing a significant majority of revenue and growth, with ARPU and ARR showing positive trends | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Builders | 154,186 | 142,546 | | Scalers | 19,680 | 16,990 | | Scalers+ | 585 | 474 | | ARPU | $111.70 | $99.45 | | ARR (in millions) | $875 | $770 | | Net dollar retention rate | 99% | 97% | - Higher Spend Customers (Builders, Scalers, Scalers+) are a critical focus, representing a significant majority of revenue and growth[125](index=125&type=chunk)[124](index=124&type=chunk) - The company changed its methodology for calculating customer count and ARR in Q4 2024, with prior periods recast[125](index=125&type=chunk)[124](index=124&type=chunk) - ARPU is calculated monthly as total revenue from Learners, Builders, Scalers, and Scalers+ divided by their total count[128](index=128&type=chunk)[129](index=129&type=chunk) - ARR is calculated by multiplying the most recent quarter's revenue by four[128](index=128&type=chunk)[129](index=129&type=chunk) [Components of Results of Operations](index=26&type=section&id=Components%20of%20Results%20of%20Operations) Revenue is derived from various cloud offerings, with cost of revenue including data center and personnel costs, while operating expenses are expected to increase due to growth investments - Revenue is generated from IaaS, PaaS, SaaS, and AI/ML offerings, with sales incentives and credits recorded as contract liabilities[131](index=131&type=chunk)[132](index=132&type=chunk) - Cost of revenue includes data center fees, personnel costs for customer support/operations, and partnership expenses[133](index=133&type=chunk)[134](index=134&type=chunk) - The company plans continued investment in infrastructure[133](index=133&type=chunk)[134](index=134&type=chunk) - Operating expenses (R&D, Sales & Marketing, G&A) are expected to increase in absolute dollars due to investments in platform, product offerings, and business growth[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - Other income, net, primarily consists of interest income, amortization of deferred financing fees, and foreign currency exchange gains/losses[138](index=138&type=chunk)[139](index=139&type=chunk) - Income tax expense is influenced by the mix of income in various jurisdictions and a full valuation allowance on U.S. deferred tax assets[138](index=138&type=chunk)[139](index=139&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2025, and 2024 [Comparison of the Three Months Ended June 30, 2025 and 2024](index=29&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) Revenue growth was driven by increased ARPU and Higher Spend Customers, while general and administrative expenses decreased due to lower personnel costs | Metric (in thousands) | 2025 | 2024 | $ Change | % Change | | :-------------------- | :--- | :--- | :------- | :------- | | Revenue | $218,700 | $192,476 | $26,224 | 14% | | Cost of revenue | $87,755 | $78,328 | $9,427 | 12% | | Research and development | $39,644 | $32,984 | $6,660 | 20% | | Sales and marketing | $19,288 | $17,997 | $1,291 | 7% | | General and administrative | $36,394 | $40,839 | $(4,445) | (11%) | | Other income, net | $6,829 | $2,481 | $4,348 | 175% | | Income tax expense | $(5,421) | $(5,671) | $250 | (4%) | - Revenue growth was primarily driven by a **12% increase in ARPU** and a **16% increase in revenue from Higher Spend Customers**[147](index=147&type=chunk)[148](index=148&type=chunk) - Gross profit increased to **60%** from **59%** YoY[147](index=147&type=chunk)[148](index=148&type=chunk) - General and administrative expenses decreased due to lower personnel and recruiting costs, including reversals of stock-based compensation from forfeited RSUs, partially offset by increases in professional services, digital services tax, and payment processing fees[152](index=152&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=31&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Revenue increased by 14% driven by ARPU and Higher Spend Customers, while general and administrative expenses significantly decreased due to lower personnel costs | Metric (in thousands) | 2025 | 2024 | $ Change | % Change | | :-------------------- | :--- | :--- | :------- | :------- | | Revenue | $429,403 | $377,206 | $52,197 | 14% | | Cost of revenue | $169,014 | $153,910 | $15,104 | 10% | | Research and development | $79,238 | $65,911 | $13,327 | 20% | | Sales and marketing | $38,689 | $36,907 | $1,782 | 5% | | General and administrative | $69,201 | $86,612 | $(17,411)| (20%) | | Other income, net | $10,567 | $5,198 | $5,369 | 103% | | Income tax expense | $(8,597) | $(5,787) | $(2,810) | 49% | - Revenue increased by **14%** driven by a **13% increase in ARPU** and a **16% increase in revenue from Higher Spend Customers**[156](index=156&type=chunk)[157](index=157&type=chunk) - Gross profit increased to **61%** from **59%** YoY[156](index=156&type=chunk)[157](index=157&type=chunk) - General and administrative expenses decreased significantly due to lower personnel costs related to acquisition-related deferred compensation and executive reorganization in H1 2024[160](index=160&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company expects sufficient liquidity from existing cash, operations, and credit facilities for both short-term and long-term needs, despite increased cash usage in investing and financing activities - The company believes existing cash, cash equivalents, cash flow from operations, and the 2025 Credit Facility will be sufficient for working capital, capital expenditures, and contractual commitments for at least the next 12 months and long term[164](index=164&type=chunk) - For the six months ended June 30, 2025, the company repurchased and retired **2,255,544 shares** of common stock for **$79 million** under the 2024 Share Buyback Program[165](index=165&type=chunk) | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $156,537 | $138,033 | | Net cash (used in) provided by investing activities | $(100,407) | $12,095 | | Net cash used in financing activities | $(96,876) | $(24,193) | | (Decrease) increase in cash, cash equivalents and restricted cash | $(40,701) | $125,874 | - The change in investing activities was primarily due to a **$91.7 million** reallocation of marketable securities to cash equivalents and increased capital expenditures[172](index=172&type=chunk) [Non‑GAAP Financial Measures](index=33&type=section&id=Non%EF%B9%A0GAAP%20Financial%20Measures) DigitalOcean utilizes non-GAAP financial measures, including Adjusted EBITDA and Non-GAAP Net Income, to provide additional insights into its operating performance - DigitalOcean uses non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA Margin, Non-GAAP Net Income, and Non-GAAP Diluted Net Income Per Share, to supplement GAAP results and provide insights into operating performance[178](index=178&type=chunk)[179](index=179&type=chunk) | Adjusted EBITDA (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income | $37,027 | $19,138 | $75,231 | $33,277 | | Adjusted EBITDA | $89,465 | $81,586 | $175,749 | $155,910 | | Adjusted EBITDA margin | 41% | 42% | 41% | 41% | | Non-GAAP Net Income (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income | $37,027 | $19,138 | $75,231 | $33,277 | | Non-GAAP Net income | $57,815 | $47,605 | $113,264 | $90,352 | | Non-GAAP Net income per share, diluted | $0.59 | $0.48 | $1.15 | $0.91 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes in market risk were reported compared to the information provided in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes in market risk were reported compared to the previous Annual Report on Form 10-K[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting identified during the quarter - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of June 30, 2025[191](index=191&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2025[192](index=192&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any litigation expected to have a material adverse effect on its financial position, results of operations, or liquidity - No current legal proceedings are expected to have a material adverse effect on the company's financial position, results of operations, or liquidity[194](index=194&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2024, were reported - No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2024[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased a significant number of common shares under its 2024 Share Buyback Program during the three months ended June 30, 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (in thousands) | | :--------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------ | | April 1-30, 2025 | 234,503 | $29.11 | $16,744 | | May 1-31, 2025 | 227,620 | $29.97 | $9,923 | | June 1-30, 2025 | 229,167 | $28.36 | $3,425 | | Total | 691,290 | $29.14 | | - The 2024 Share Buyback Program, approved for up to **$140 million** through fiscal year 2025, resulted in the repurchase of **691,290 shares** for an average price of **$29.14 per share** during Q2 2025[196](index=196&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as 'Not applicable,' indicating no defaults upon senior securities [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as 'Not applicable,' indicating no mine safety disclosures [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) The Chief Product and Technology Officer adopted a Rule 10b5-1(c) trading plan for the sale of common stock between September 2025 and June 2026 - Bratin Saha, Chief Product and Technology Officer, adopted a 10b5-1 trading plan to sell up to **130,557 shares** of common stock between September 3, 2025, and June 1, 2026[199](index=199&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Credit Agreement, CEO and CFO certifications, and Inline XBRL documents - Key exhibits include the Credit Agreement dated May 5, 2025, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[202](index=202&type=chunk) [Signatures](index=40&type=section&id=Signatures) The report was duly signed on August 5, 2025, by the Chief Executive Officer and Chief Financial Officer, certifying its submission - The report was signed by CEO Padmanabhan Srinivasan and CFO W. Matthew Steinfort on August 5, 2025[206](index=206&type=chunk)

Core Insights - DigitalOcean Holdings, Inc. (DOCN) reported quarterly earnings of $0.59 per share, exceeding the Zacks Consensus Estimate of $0.47 per share, and showing an increase from $0.48 per share a year ago, resulting in an earnings surprise of +25.53% [1] - The company achieved revenues of $218.7 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.96% and increasing from $192.48 million year-over-year [2] - DigitalOcean has consistently surpassed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The future performance of DigitalOcean's stock will largely depend on management's commentary during the earnings call and the sustainability of the stock's immediate price movement based on the recently released numbers [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.47 on revenues of $223.19 million, and for the current fiscal year, it is $1.99 on revenues of $880.81 million [7] Industry Context - The Internet - Software industry, to which DigitalOcean belongs, is currently ranked in the top 32% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact DigitalOcean's stock performance [5]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $219 million, representing a 14% year-over-year growth [7] - Adjusted free cash flow was $57 million, or 26% of revenue, marking a significant increase from Q1 [30] - Annual run rate revenue (ARR) reached $875 million, with an incremental ARR of $32 million, the highest since 2022 [26][30] - Net dollar retention (NDR) improved to 99%, up from 97% in the same quarter last year [28] Business Line Data and Key Metrics Changes - AIML revenue grew over 100% year-over-year, driven by strong demand for inference workloads [29] - Revenue from Scalar Plus customers, those with an annual run rate over $100,000, grew 35% year-over-year and accounted for 24% of total revenue [28] - The company released over 60 new products and features during the quarter, with significant adoption among top customers [9] Market Data and Key Metrics Changes - The company is experiencing strong growth in both core cloud and AIML segments, with improved customer acquisition metrics [22][29] - The introduction of new data centers and advanced networking features is expected to enhance service offerings and attract larger enterprise customers [10][12] Company Strategy and Development Direction - The company is focusing on product innovation and enhancing its go-to-market strategy, particularly in core cloud and AIML [6][23] - A dedicated migrations team has been established to support customers transitioning from other cloud providers [13] - The launch of the Gradient AI platform aims to democratize access to AI and streamline the development of AI applications [15][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the second half of the year, raising full-year revenue guidance to $888 million to $892 million [8][34] - The company is optimistic about maintaining healthy profitability while accelerating revenue growth [30][82] - Management noted that the current economic environment has mixed impacts on customer behavior, with some customers expanding while others are cautious [52] Other Important Information - The company is on track to address its 2026 convertible debt by the end of the calendar year [9][32] - The balance sheet remains strong, with $388 million in cash and ongoing share repurchase programs [31] Q&A Session Summary Question: Can you elaborate on the AIML revenue growth? - Management indicated that AIML revenue grew over 100% year-over-year, driven by the launch of new NVIDIA gear and the introduction of a three-layer AI stack [39][41] Question: What is the current status of net new ARR? - Management clarified that while AIML ARR was previously noted at over 160%, the current growth reflects a more challenging comparison due to last year's strong performance [48][49] Question: How are the unit economics of the AI business tracking? - Management expressed confidence in the margins of the AI business, noting that higher layers of the AI stack command better margins than pure infrastructure [58][60] Question: What is the breakdown of AI versus non-AI revenue? - Management did not provide specific figures but indicated that AI revenue is becoming a material part of the business, expected to grow significantly in the coming years [85][88] Question: How does the company view capacity constraints in the AI industry? - Management acknowledged that capacity constraints are a reality in AI but emphasized their differentiation through a dual cloud stack that supports both AI infrastructure and general cloud services [75][78]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $219 million, representing a 14% year-over-year growth [6][23] - Adjusted free cash flow was $57 million, or 26% of revenue, marking a significant increase from Q1 [7][28] - Non-GAAP diluted net income per share was $0.59, a 23% increase year-over-year, while GAAP diluted net income per share was $0.39, a 95% increase year-over-year [28] Business Line Data and Key Metrics Changes - AIML business revenue grew over 100% year-over-year, indicating strong demand [6][26] - Revenue from Scalar Plus customers, those with an annual run rate of over $100,000, grew 35% year-over-year and accounted for 24% of total revenue [6][25] - Incremental ARR for the quarter was $32 million, the highest since 2022 [6][24] Market Data and Key Metrics Changes - The company raised its full-year revenue guidance to a range of $888 million to $892 million, reflecting confidence in continued growth [7][32] - Net dollar retention (NDR) improved to 99%, up from 97% in the same quarter last year [25] Company Strategy and Development Direction - The company is focusing on product innovation and enhancing its go-to-market strategy, particularly in core cloud and AI [5][21] - A new dedicated migrations team was established to support customers transitioning from other cloud providers [12] - The launch of the Gradient AI platform aims to democratize access to AI and enhance customer capabilities [13][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining growth momentum into the second half of the year, supported by strong customer acquisition and product adoption [21][23] - The company is addressing outstanding convertible debt and is on track to manage its capital allocation effectively [8][30] Other Important Information - The company released over 60 new products and features during the quarter, with significant adoption among top customers [8][9] - The Atlanta data center was officially announced, designed to support high-density GPU infrastructure optimized for AI [9][10] Q&A Session Summary Question: Can you elaborate on the AIML revenue growth? - Management noted that AIML revenue grew over 100% year-over-year, driven by the introduction of new NVIDIA gear and a three-layer AI stack [38][40] Question: What is the current status of net new ARR? - Management clarified that while AIML ARR was previously noted at over 160%, the current growth reflects a more challenging comparison due to last year's strong performance [47][49] Question: How are unit economics tracking in the AI business? - Management expressed confidence in the margins of the AI business, noting that higher layers of the AI stack command better margins than pure infrastructure [58][60] Question: What is the breakdown of AI versus non-AI revenue? - Management indicated that AI revenue is becoming a material part of the business but remains a small percentage overall, with expectations for growth in 2026 [84][86] Question: Is AI revenue included in the net dollar retention metric? - Management confirmed that AI revenue is not currently included in the NDR metric, but it is expected to contribute in the future as inferencing workloads scale [93][95]

Financial Performance - Q2 2025 revenue reached $219 million, a 14% year-over-year increase[26] - Annual Run-rate Revenue (ARR) grew to $875 million, also a 14% year-over-year increase[26] - Net Dollar Retention Rate (NDR) improved to 99%, a 200 bps increase[26] - Average Revenue per User (ARPU) increased by 12% to $111.70[26] - The company is raising full year revenue guidance to $888 to $892 million[21] - Adjusted Free Cash Flow Margin for Q2 2025 was 26%, with a trailing twelve months margin of 14%[35] Customer Growth - Digital Native Enterprise (DNE) customers expanded to 174,000[21] - Scalers+ (>$100K Annual run rate) are growing at 35% and represent 24% of revenue[21] - Higher Spend Customers (Builders, Scalers, and Scalers+) represent 89% of total company revenue[41] Product and Innovation - Launched 60 new features across Cloud and AI stack[22] - General Availability (GA) of DigitalOcean Gradient AI Platform[22] Market Focus - The company focuses on the $140 billion Digital Native Enterprises market[11]

Exhibit 99.1 "We delivered another quarter of solid performance across both AI and core cloud. Total revenue grew 14% year-over-year, we achieved the highest incremental ARR since Q4 of 2022, and we more than doubled our AI/ML revenue year-over-year." said Paddy Srinivasan, CEO of DigitalOcean. "Our strategic focus on higher spending digital native enterprises and key strategic partners drove Scalers+ revenue up 35% year-over-year, reaching 24% of total revenue. We also continue to effectively balance highe ...

The upcoming report from DigitalOcean Holdings, Inc. (DOCN) is expected to reveal quarterly earnings of $0.47 per share, indicating a decline of 2.1% compared to the year-ago period. Analysts forecast revenues of $216.62 million, representing an increase of 12.5% year over year. Over the last 30 days, there has been a downward revision of 1.8% in the consensus EPS estimate for the quarter, leading to its current level. This signifies the covering analysts' collective reconsideration of their initial forecas ...