Revenue and Customer Growth - Revenue from Higher Spend Customers accounted for 88% of total revenue as of March 31, 2025, up from approximately 87% as of March 31, 2024[102]. - The number of Higher Spend Customers increased to approximately 171,000 as of March 31, 2025, compared to approximately 157,000 as of March 31, 2024[102]. - Average Revenue Per User (ARPU) rose from $95.13 in Q1 2024 to $108.56 in Q1 2025[103]. - Revenue for the three months ended March 31, 2025, was $210.7 million, a 14% increase from $184.7 million in the same period of 2024, driven by a 14% increase in ARPU to $108.56 from $95.13[140]. Financial Performance - Annual Run-Rate (ARR) increased to $843 million as of March 31, 2025, up from $739 million as of March 31, 2024[103]. - Net Dollar Retention (NDR) improved to 100% in Q1 2025, up from 97% in Q1 2024[107]. - Gross profit margin improved to 61% for the three months ended March 31, 2025, compared to 59% for the same period in 2024[141]. - Adjusted EBITDA for the three months ended March 31, 2025, was $86.3 million, representing a margin of 41%, compared to $74.3 million and a margin of 40% in the same period of 2024[167]. - GAAP net income attributable to common stockholders was $38.2 million for the three months ended March 31, 2025, compared to $14.1 million in the same period of 2024[171]. - Non-GAAP net income for the three months ended March 31, 2025, was $55.4 million, up from $42.7 million in the same period of 2024[171]. - GAAP diluted net income per share increased to $0.39 for the three months ended March 31, 2025, from $0.15 in the same period of 2024[171]. - Non-GAAP diluted net income per share was $0.56 for the three months ended March 31, 2025, compared to $0.43 in the same period of 2024[171]. Expenses and Cost Management - Sales and marketing expenses were approximately 9% of revenue for Q1 2025, down from 10% in Q1 2024[104]. - Cost of revenue increased by $5.7 million, or 8%, to $81.3 million for the three months ended March 31, 2025, primarily due to higher co-location costs from data center expansion[141]. - Research and development expenses rose by $6.7 million, or 20%, to $39.6 million for the three months ended March 31, 2025, mainly due to increased personnel costs and professional services[144]. - General and administrative expenses decreased by $13.0 million, or 28%, to $32.8 million for the three months ended March 31, 2025, primarily due to lower personnel costs related to acquisition-related compensation[146]. - Total operating expenses decreased by $5.8 million, or 6%, to $91.8 million for the three months ended March 31, 2025[144]. Cash Flow and Investments - Net cash provided by operating activities was $64.1 million for the three months ended March 31, 2025, a decrease from $66.7 million in the same period of 2024[157]. - Net cash used in investing activities was $65.0 million for the three months ended March 31, 2025, compared to $46.4 million provided in the same period of 2024, primarily due to a $91.7 million reallocation of marketable securities to cash equivalents[158]. - Net cash used in financing activities increased to $67.2 million for the three months ended March 31, 2025, from $11.2 million in the same period of 2024, driven by $50.3 million in stock repurchases[159]. - The company believes existing cash and cash equivalents, along with cash flow from operations, will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months[150]. - As of March 31, 2025, the company had $360.4 million in cash and cash equivalents, primarily consisting of cash and money market funds[153]. Strategic Initiatives - The company released several new products in 2024, including GPU Droplets and the GenAI platform, to enhance its offerings[109]. - The company completed acquisitions of Paperspace and Cloudways to expand its AI/ML and Managed Hosting capabilities[112]. - The company is focused on increasing usage by existing customers and expanding its base of Higher Spend Customers through targeted strategies[108]. - The company plans to continue investing in infrastructure to support product portfolio and scalability of the customer base, which may affect future cost of revenue[127]. - The company approved a stock repurchase program of up to $140 million through fiscal year 2025, with $59 million spent to repurchase 1,564,254 shares in the three months ended March 31, 2025[151]. Geographic Revenue Distribution - The company serves customers across approximately 190 countries, with 37% of revenue generated from North America, 28% from Europe, 24% from Asia, and 11% from the rest of the world for Q1 2025[105]. Other Income and Taxation - Other income, net increased by $1.0 million, or 38%, to $3.7 million for the three months ended March 31, 2025, mainly from gains in foreign currency fluctuations[147]. - Income tax expense increased by $3.1 million, or 2,638%, to $(3.2) million for the three months ended March 31, 2025, due to higher pretax income[148].

Core Insights - DigitalOcean reported a revenue increase of 14% year-over-year for Q1 FY25, reaching $210.7 million, and earnings per share surged by 160% to $0.39, both exceeding expectations [2][3][4] Financial Performance - Revenue for Q1 FY24 was $185 million, while Q1 FY25 saw an increase to $210.7 million, marking a 14% growth [2] - Earnings per share rose from $0.15 in Q1 FY24 to $0.39 in Q1 FY25, reflecting a 160% increase [2] - Average revenue per customer (ARPU) increased from $95.13 to $108.56, a 14% rise [2] - The net dollar retention rate improved from 99% to 100%, indicating enhanced customer retention [2][4] Growth Trends - DigitalOcean's revenue growth had previously slowed, dropping from 30% in Q1 2023 to 12% in Q1 FY24, but has shown signs of recovery with a 14% growth in Q1 FY25 [3] - The company is focusing on "digital native" companies, with revenue from customers spending over $100,000 annually increasing by 41%, now accounting for 23% of total revenue [5] - The number of high-spending customers (over $600 annually) grew by 9%, representing 88% of total revenue [5] Profitability Metrics - Adjusted EBITDA margin was 41%, slightly down from recent quarters but up from the previous year, while GAAP gross margin remained strong at 61% [6] - Both GAAP and adjusted earnings metrics are on an upward trend [6] Cash Flow Analysis - Operating cash flow decreased to $64 million, down $2.6 million year-over-year, while free cash flow shifted from $34 million to an outflow of $821,000 [7] - The decline in cash flow is attributed to timing issues related to accounts receivable and annual employee bonuses, alongside increased capital expenditures for a new data center in Atlanta [7] - Management anticipates adjusted free cash flow margins of 16% to 18% for the year [7] Market Reaction - Despite solid results, share prices fell about 5% in premarket trading, likely influenced by broader market trends [8] Future Outlook - DigitalOcean aims to expand its digital native enterprise customer base from 171,000 to 4 million and targets revenue growth of 18% to 20% by 2027, with expectations for even faster growth in subsequent years [9][10] - The company plans to enhance its cloud capabilities, particularly in AI, to meet the needs of its digital-native customers [10]

Core Insights - DigitalOcean Holdings, Inc. (DOCN) reported quarterly earnings of $0.56 per share, exceeding the Zacks Consensus Estimate of $0.45 per share, and up from $0.43 per share a year ago, representing an earnings surprise of 24.44% [1] - The company achieved revenues of $210.7 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 0.92% and increasing from $184.73 million year-over-year [2] - DigitalOcean has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.48 on revenues of $216.78 million, and for the current fiscal year, it is $1.90 on revenues of $881.58 million [7] - The estimate revisions trend for DigitalOcean is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Internet - Software industry, to which DigitalOcean belongs, is currently ranked in the top 35% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - Revenue growth increased by 14% year over year to $211 million in Q1 2025, with annual run rate revenue (ARR) reaching $843 million [6][30] - Net dollar retention rate (NDR) improved to 100%, marking the first improvement since Q2 2023 [7][31] - Gross margin for Q1 was 61%, a 200 basis point increase from the prior year, driven by cost optimization [8][32] - Adjusted EBITDA was $86 million, reflecting a 16% year-over-year increase, with an adjusted EBITDA margin of 41% [32] Business Line Data and Key Metrics Changes - Revenue from customers with an annual run rate of over $100,000 grew by 41% year over year, representing 23% of total revenue [7][30] - The number of higher spending customers increased by 27% year over year, with average spend rising by 11% [8] - The company released over 50 new products and features in Q1, significantly more than the previous year [10][11] Market Data and Key Metrics Changes - The company is seeing strong growth in AI-related annual recurring revenue (ARR), which is growing over 160% year over year [6] - The demand for AI products, particularly those leveraging NVIDIA and AMD GPUs, is outpacing supply, indicating strong market traction [20] Company Strategy and Development Direction - The company aims to scale with digital native enterprise customers and democratize access to AI for startups and existing customers [5][28] - A focus on product innovation and strategic go-to-market efforts is evident, with significant enhancements to core cloud and AI platforms [10][11] - The company is exploring additional funding strategies to support larger workload migrations and maintain strong free cash flow generation [10][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance despite economic uncertainties, citing strong visibility into customer usage trends [44][60] - The company is observing a cautious approach among some customers, particularly in the ad tech sector, but overall demand remains robust [58][60] - The management is optimistic about the potential for larger, multi-year deals as customer confidence in the platform grows [63][66] Other Important Information - The company has initiated a new secured five-year credit facility agreement of $800 million to refinance existing convertible notes [26][42] - The Atlanta data center is expected to enhance capacity for AI workloads and improve long-term gross margin profiles [39][40] Q&A Session Summary Question: When is the GenAI platform expected to be generally available? - The GenAI platform is expected to go live by the end of Q2 or beginning of Q3, with ongoing feature additions during the beta phase [49][50] Question: What changes are observed in customer buying behavior amid macroeconomic uncertainty? - The company sees solid growth among digital native enterprises, with no significant concentration in verticals or geographies, maintaining confidence in full-year guidance [56][60] Question: Can you elaborate on the $20 million multi-year deal and the potential for similar deals? - Conversations for multi-year commitments are increasing, supported by new functionalities that allow staged migrations and larger workloads [62][63] Question: How is the company thinking about CapEx investments for the year? - The company is comfortable with its capital expenditure estimates for the year, focusing on driving revenue growth while maintaining strong free cash flow margins [68][70]

Financial Data and Key Metrics Changes - Revenue growth increased by 14% year over year to $211 million in Q1 2025, with annual run rate revenue (ARR) reaching $843 million [5][27] - Net dollar retention rate (NDR) improved to 100%, marking the first improvement since Q2 2023 [5][28] - Gross margin for Q1 was 61%, a 200 basis point increase from the prior year, driven by cost optimization [6][29] - Adjusted EBITDA was $86 million, reflecting a 16% year-over-year increase, with an adjusted EBITDA margin of 41% [29] Business Line Data and Key Metrics Changes - Revenue from customers with an annual run rate of over $100,000 grew by 41% year over year, representing 23% of total revenue [5][27] - Customer count in this segment increased by 27% year over year, with an 11% increase in average spend [6][27] - Overall revenue from higher spending customers grew 16% year over year, making up 88% of total revenue [6] Market Data and Key Metrics Changes - The company is focusing on digital native enterprises, which are driving significant growth in cloud services [5][28] - The demand for AI inferencing workloads is increasing, with the company closing a $20 million multiyear inferencing commitment early in Q2 [7][8] Company Strategy and Development Direction - The company aims to scale with digital native enterprise customers and democratize access to AI for startups and existing customers [5][24] - A significant focus is on product innovation, with over 50 new products and features released in Q1, five times more than the previous year [8][9] - The company is exploring additional funding strategies to support growth while maintaining strong free cash flow [8][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance despite economic uncertainties, citing strong visibility into customer usage trends [56][41] - The company is observing a cautious approach from some sectors, such as ad tech, but overall customer demand remains robust [56][54] - The management is optimistic about the growth potential from larger digital native enterprises and AI workloads [36][70] Other Important Information - The company has entered into a new secured five-year credit facility agreement of $800 million to refinance existing convertible notes [23][39] - The Atlanta data center is expected to enhance capacity for AI workloads and improve long-term gross margin profiles [7][36] Q&A Session Summary Question: When is the GenAI platform expected to be generally available? - The GenAI platform is expected to go live by the end of Q2 or beginning of Q3, with positive feedback from customers during the beta phase [46][47] Question: What changes are being observed in customer buying behavior amid macroeconomic uncertainty? - The company is seeing robust growth among digital native enterprises, with no significant concentration in any verticals or geographies [54][56] Question: Can you discuss the $20 million multiyear deal and the potential for more similar deals? - The company is having productive conversations with customers for multiyear commitments, supported by recent product enhancements and a more mature go-to-market strategy [58][60] Question: How is the company planning CapEx investments for the year? - The company is comfortable with its capital expenditure estimates for the year, focusing on driving revenue growth while maintaining strong free cash flow margins [65][66]

Financial Data and Key Metrics Changes - Revenue growth increased by 14% year over year to $211 million in Q1 2025, with annual run rate revenue (ARR) reaching $843 million [6][31] - Net dollar retention rate improved to 100%, marking the first improvement since Q2 2023 [7][32] - Adjusted EBITDA was $86 million, reflecting a 16% year-over-year increase, with an adjusted EBITDA margin of 41% [33] - Non-GAAP diluted net income per share increased by 30% year over year to $0.56, while GAAP diluted net income per share rose by 160% to $0.39 [34] Business Line Data and Key Metrics Changes - Revenue from customers with an annual run rate of over $100,000 grew by 41% year over year, representing 23% of total revenue [7][31] - The number of higher spending customers increased by 27% year over year, with average revenue per user (ARPU) growing by 14% [8][32] Market Data and Key Metrics Changes - The company reported a significant increase in AI-related annual recurring revenue (ARR), growing over 160% year over year [6][31] - The new Atlanta data center is expected to enhance capacity for AI workloads, supporting larger and more complex customer needs [9][40] Company Strategy and Development Direction - The company aims to scale with digital native enterprise customers and democratize access to AI for startups and existing customers [5][28] - A focus on product innovation led to over 50 new product releases in Q1, significantly enhancing the platform's capabilities [10][11] - The company is exploring additional funding strategies to support growth while maintaining free cash flow [10][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance despite economic uncertainties, citing strong visibility into customer usage trends [61][46] - The company is observing a shift towards larger, multi-year contracts, particularly in AI inferencing and core cloud services [64][66] Other Important Information - The company has initiated a new secured five-year credit facility agreement of $800 million to refinance existing convertible notes [26][44] - The Atlanta data center is part of a long-term strategy to optimize data center operations and improve gross margins [9][40] Q&A Session Summary Question: When is the GenAI platform expected to be generally available? - The GenAI platform is expected to go live by the end of Q2 or beginning of Q3, with ongoing enhancements being added during the beta phase [51] Question: What changes are being observed in customer buying behavior amid macroeconomic uncertainty? - Management noted solid evidence of growth among digital native enterprises, with cautiousness observed in specific sectors like ad tech [58][60] Question: Can you elaborate on the $20 million multi-year deal and the potential for similar deals? - The company is seeing increased confidence from customers to commit to larger workloads, supported by new functionalities that facilitate staged migrations [64][66] Question: How is the company planning for CapEx investments in light of increasing capacity needs? - The company is comfortable with its current CapEx estimates and is considering additional financing tools to accommodate larger growth opportunities [70][72]

Financial Performance - Revenue grew by 14% year-over-year, reaching $211 million in Q1 2025, compared to $185 million in Q1 2024[13] - Net Dollar Retention (NDR) rate increased to 100% in Q1 2025, a 300 bps increase from 97% in Q1 2024[13] - Average Revenue Per User (ARPU) increased by 14% to $108.56 in Q1 2025, up from $95.13 in Q1 2024[13] - The company is maintaining its full-year revenue outlook for 2025 at $870-$890 million, representing a growth of 11.5%-14%[26] - Adjusted EBITDA margin is projected to be between 37% and 40% for FY 2025[26] Customer Traction - Revenue from customers spending over $100K+ annually grew by 41% year-over-year, contributing to 23% of total revenue[10] - Higher Spend Customers (Builders, Scalers, and Scalers+) increased to 170700 in Q1 2025[45] Product Development - The company released five times more product features in Q1 2025 compared to Q1 2024[10] - AI ARR grew over 160% year-over-year[10] Strategic Initiatives - The company announced an $800 million credit facility to refinance existing 2026 convertible notes, including a $500 million Term Loan A and a $300 million revolver[25] - The company is targeting 18-20% revenue growth and mid-teens adjusted Free Cash Flow (aFCF) margins by 2027[8]

Credit Agreement and Financial Covenants - DigitalOcean, LLC has entered into a credit agreement dated May 5, 2025, with Morgan Stanley as the Administrative Agent and Collateral Agent[26]. - The agreement includes commitments from multiple lenders, including JPMorgan Chase Bank, Bank of America, and MUFG Bank, among others[26]. - The credit facilities are intended to support the Parent Borrower's operational and strategic initiatives[28]. - The agreement outlines various sections related to loans, commitments, and conditions precedent to credit extensions[4][9]. - Financial covenants and representations are included to ensure compliance and financial stability[11][14]. - The agreement specifies the use of proceeds and maintenance of properties as part of the affirmative covenants[12][13]. - The document includes provisions for events of default and remedies to protect lenders' interests[16]. - The agreement allows for the issuance of letters of credit and outlines the terms for such financial instruments[5]. - The Parent Borrower is required to maintain its existence and comply with applicable laws as part of the covenants[12]. - The agreement emphasizes the importance of maintaining financial statements and records for transparency and accountability[13]. - The Collateral Agent is Morgan Stanley, responsible for managing collateral under the Loan Documents[93]. - The Collateral and Guarantee Requirement includes the unconditional guarantee of all Obligations by Holdings, the Parent Borrower, Additional Borrowers, and Restricted Subsidiaries[93]. - Obligations and Guarantees must be secured by a first-priority security interest in all Equity Interests of Additional Borrowers and Holdings[93]. - The Collateral must not be subject to any Liens other than Permitted Liens[99]. - No stock certificates of Immaterial Subsidiaries are required to be delivered to the Collateral Agent[99]. - The definition of "Collateral" excludes any Excluded Property[97]. - The Administrative Agent may grant extensions for the perfection of security interests if it determines that perfection cannot be accomplished without undue effort or expense[96]. - The Collateral and Guarantee Requirement does not apply to actions necessary to comply with laws outside the U.S.[99]. - The aggregate amount added back for "run rate" cost savings shall not exceed 30% of Consolidated EBITDA for the period[111]. - Consolidated EBITDA is calculated by adjusting Consolidated Net Income for various expenses and non-cash charges[109]. - Consolidated Net Income is defined as the net income (loss) of the company and its Restricted Subsidiaries determined on a consolidated basis according to GAAP[114]. - Consolidated Total Debt includes the aggregate principal amount of Indebtedness of the company and its Restricted Subsidiaries, excluding certain obligations such as Swap Contracts[120]. - Consolidated EBITDA adjustments include Acquired EBITDA from any acquired entity or business, provided the acquisition consideration is over $100 million[112]. - Consolidated Net Indebtedness is calculated as Consolidated Total Debt less unrestricted cash and Cash Equivalents, not exceeding $340 million or 100% of Consolidated EBITDA for the most recent Test Period[118]. - Consolidated Net Interest Expense is the interest expense net of interest income for the company and its Restricted Subsidiaries[119]. - Disposed EBITDA refers to the amount of Consolidated EBITDA from any Sold Entity or Business for a specified period[130]. - The company may exclude certain non-recurring gains or losses from its Consolidated Net Income, including extraordinary expenses related to restructuring or new product introductions[114]. - The company’s financial reporting excludes unrealized gains or losses related to foreign currency translation and certain non-cash compensation charges[115]. - Adjustments to Consolidated EBITDA may also include Pro Forma Adjustments as applicable[112]. - The company’s financial metrics are determined on a consolidated basis in accordance with GAAP, ensuring compliance with accounting standards[114]. Revenue and User Growth - The company reported a total revenue of $150 million for the last quarter, representing a 20% increase year-over-year[110]. - User growth reached 1.5 million new subscribers, a 15% increase compared to the previous quarter[110]. - The company expects revenue guidance for the next quarter to be between $160 million and $170 million, indicating a growth of 7% to 13%[110]. - New product launches are anticipated to contribute an additional $30 million in revenue over the next fiscal year[110]. - The company is investing $50 million in research and development for new technologies aimed at enhancing user experience[110]. - Market expansion efforts are projected to increase market share by 5% in the next year[110]. - The company has completed a strategic acquisition valued at $20 million to enhance its product offerings[110]. - Cost reduction strategies are expected to save approximately $10 million annually[110]. - The company plans to enter two new international markets by the end of the fiscal year[110]. - Customer retention rates improved to 85%, up from 80% in the previous quarter[110]. - The company reported a significant increase in revenue, achieving $1.5 billion in Q3 2023, representing a 20% year-over-year growth[1]. - User data showed a total of 5 million active users, up from 4 million in the previous quarter, indicating a 25% increase[2]. - The company provided guidance for Q4 2023, projecting revenue between $1.6 billion and $1.8 billion, which reflects a growth rate of 15% to 20%[3]. - New product launches are expected to contribute an additional $200 million in revenue in the next quarter[4]. - The company is investing $50 million in R&D for new technologies aimed at enhancing user experience[5]. - Market expansion efforts include entering three new countries, which are projected to add $300 million in annual revenue[6]. - The company is considering strategic acquisitions to bolster its market position, with a budget of $100 million allocated for potential deals[7]. - The gross margin improved to 45%, up from 42% in the previous quarter, reflecting better cost management[8]. - Customer retention rates increased to 90%, up from 85% last quarter, indicating improved customer satisfaction[9]. - The company plans to implement a new marketing strategy with a budget increase of 10% to enhance brand visibility[10]. - The company reported a significant increase in revenue, reaching $1.5 billion, representing a 20% year-over-year growth[157]. - User data showed a total of 5 million active users, up from 4 million in the previous quarter, indicating a 25% increase[158]. - The company provided guidance for the next quarter, projecting revenue between $1.6 billion and $1.7 billion, which would reflect a growth rate of 10% to 13%[159]. - New product launches are anticipated to contribute an additional $200 million in revenue over the next fiscal year[160]. - The company is investing $50 million in research and development for new technologies aimed at enhancing user experience[161]. - Market expansion plans include entering three new countries by the end of the fiscal year, targeting a potential market of 10 million users[162]. - The company completed a strategic acquisition of a smaller competitor for $300 million, expected to enhance market share by 15%[163]. - The company reported a net income of $300 million, a 15% increase compared to the previous year[165]. - The Federal Funds Rate is currently at 2.5%, impacting the company's borrowing costs and financial strategy[166].

The upcoming report from DigitalOcean Holdings, Inc. (DOCN) is expected to reveal quarterly earnings of $0.45 per share, indicating an increase of 4.7% compared to the year-ago period. Analysts forecast revenues of $208.77 million, representing an increase of 13% year over year.The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. This represents how the covering analysts, as a whole, have reassessed their initial estimates during this timeframe.Before a company announces ...

Ex-hedge fund analyst with a strong interest in finding winners and losers in industries where corporate strategy matters most. I focus on analysing the market structure, competitive positioning and strategic catalysts that lead to money-making ideas in varying time horizons. Enjoy reading the research!Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article my ...