| --- | --- | |--------------------------------|-------| | | | | | | | | | | Earnings Presentation Q3 2024 | | | November 4, 2024 | | Safe Harbor This presentation contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "estimate," "believe," "predict," "potential" or "continue" or the negative terms or other similar e ...

Customer Metrics - As of September 30, 2024, DigitalOcean had approximately 638,000 active customers categorized as Learners, Builders, and Scalers[77]. - The number of Scalers increased to approximately 18,000 in Q3 2024, up from 16,000 in Q3 2023, while Builders grew to approximately 145,000 from 138,000[78]. Revenue Growth - Average Revenue Per User (ARPU) increased from $92.06 in Q3 2023 to $102.51 in Q3 2024[78]. - Annual Run-Rate Revenue (ARR) rose to $798 million as of September 30, 2024, up from $713 million in the same period last year[78]. - Revenue for the three months ended September 30, 2024, was $198,484 thousand, an increase of $21,422 thousand or 12% compared to $177,062 thousand for the same period in 2023[105]. - Revenue for the nine months ended September 30, 2024, was $575,690 thousand, an increase of $63,680 thousand or 12% compared to $512,010 thousand for the same period in 2023[111]. Revenue Sources - Revenue from Builders and Scalers increased by 7% and 19%, respectively, for the three months ended September 30, 2024, compared to the same period in 2023[78]. - For the three months ended September 30, 2024, 39% of revenue was generated from North America, 28% from Europe, 23% from Asia, and 10% from the rest of the world[78]. Profitability and Margins - Gross profit remained consistent at 60% for both the three months ended September 30, 2024, and 2023[105]. - Gross profit margin improved to 61% for the nine months ended September 30, 2024, up from 59% in the same period of 2023[112]. - The net income margin for Q3 2024 was 17%, compared to 11% in Q3 2023, showing a significant improvement[127]. - The adjusted EBITDA margin for Q3 2024 was 44%, slightly up from 43% in Q3 2023[127]. Expenses - DigitalOcean's sales and marketing expenses were approximately 9% of revenue for Q3 2024, down from 11% in Q3 2023[78]. - Research and development expenses increased by $4,750 thousand or 15% to $37,377 thousand for the three months ended September 30, 2024, compared to $32,627 thousand in 2023[107]. - General and administrative expenses increased by $20,358 thousand or 101% to $40,422 thousand for the three months ended September 30, 2024, compared to $20,064 thousand in 2023[107]. Cash Flow and Liquidity - Net cash provided by operating activities was $211.4 million for the nine months ended September 30, 2024, compared to $154.4 million in 2023[118]. - Net cash used in investing activities was $47.7 million for the nine months ended September 30, 2024, a significant decrease from $248.3 million in 2023[119]. - As of September 30, 2024, the company had $439.9 million in cash and cash equivalents, indicating strong liquidity[116]. Income and Earnings - GAAP net income attributable to common stockholders for Q3 2024 was $32,949,000, compared to $19,175,000 in Q3 2023, representing a 71% increase[127]. - Adjusted EBITDA for Q3 2024 was $86,720,000, up from $75,776,000 in Q3 2023, reflecting a 14% growth[127]. - Non-GAAP net income for the nine months ended September 30, 2024, was $142,026,000, compared to $117,996,000 for the same period in 2023, indicating a 20% increase[132]. Stock-Based Compensation - Stock-based compensation for Q3 2024 was $22,949,000, down from $28,731,000 in Q3 2023, a decrease of 20%[132]. - Acquisition-related compensation for Q3 2024 was $3,193,000, compared to $7,995,000 in Q3 2023, a reduction of 60%[132].

Financial Performance - Revenue for Q3 2024 was $198 million, representing a 12% year-over-year increase[2] - Net income was $33 million, a 72% increase year-over-year, with a net income margin of 17%[3] - Adjusted EBITDA was $87 million, up 14% year-over-year, with an adjusted EBITDA margin of 44%[3] - Annual Run-Rate Revenue (ARR) reached $798 million, also a 12% increase year-over-year[2] - Revenue for Q3 2024 reached $198,484,000, a 12.5% increase from $177,062,000 in Q3 2023[27] - Gross profit for Q3 2024 was $119,441,000, up 11.8% from $106,733,000 in Q3 2023[27] - Net income attributable to common stockholders for Q3 2024 was $32,949,000, compared to $19,175,000 in Q3 2023, representing a 71.6% increase[27] - Non-GAAP Net income for the three months ended September 30, 2024, was $51,674,000, compared to $43,591,000 for the same period in 2023, indicating an 18.5% increase[35] - The company reported a net income margin of 17% for the three months ended September 30, 2024, compared to 11% for the same period in 2023[33] Guidance and Expectations - DigitalOcean is raising its full year 2024 revenue guidance to $775 to $777 million[6] - The fourth quarter revenue guidance is set between $199 to $201 million[5] - The company expects continued growth in adjusted EBITDA and net income margins in the upcoming quarters, driven by operational efficiencies and market expansion strategies[33] Customer Metrics - Average Revenue Per Customer (ARPU) increased to $102.51, an 11% rise compared to Q3 2023[4] - Net Dollar Retention Rate (NDR) remained stable at 97% compared to the prior quarter[4] Cash and Assets - Cash and cash equivalents totaled $440 million as of September 30, 2024[3] - Total current assets increased to $552,006,000 as of September 30, 2024, from $502,994,000 at the end of 2023, a growth of 9.7%[25] - Cash and cash equivalents rose to $439,872,000 as of September 30, 2024, compared to $317,236,000 at the end of 2023, an increase of 38.7%[25] - Total assets increased to $1,526,478,000 as of September 30, 2024, from $1,460,967,000 at the end of 2023, reflecting a growth of 4.5%[25] Operating Expenses and Cash Flow - Operating expenses for Q3 2024 totaled $94,835,000, a 33.1% increase from $71,265,000 in Q3 2023[27] - The company reported net cash provided by operating activities of $211,386,000 for the nine months ended September 30, 2024, compared to $154,426,000 for the same period in 2023[29] - GAAP Net cash provided by operating activities for the three months ended September 30, 2024, was $73,353,000, compared to $54,050,000 for the same period in 2023, a 35.8% increase[39] Capital Expenditures - Capital expenditures for property and equipment for the three months ended September 30, 2024, were $57,352,000, compared to $20,229,000 in the same period of 2023[39] Share Metrics - The weighted-average shares used to compute net income per share (diluted) were 102,591,000 for Q3 2024, compared to 102,674,000 for Q3 2023[27] - Non-GAAP Net income per share, diluted, for the three months ended September 30, 2024, was $0.52, compared to $0.44 for the same period in 2023[36] Product Development - The company launched 42 new product features in Q3, including Global Load Balancers and Kubernetes Log Forwarding[4]

Core Insights - DigitalOcean Holdings, Inc. (DOCN) is expected to report quarterly earnings of $0.40 per share, reflecting a decline of 9.1% year-over-year, while revenues are forecasted to be $196.59 million, indicating an 11% increase year-over-year [1] - The consensus EPS estimate has remained unchanged over the last 30 days, suggesting analysts have collectively reevaluated their initial estimates [1][2] Financial Metrics - Analysts estimate a 'Net Dollar Retention Rate' of 97.7%, up from 96% in the previous year [4] - The projected 'Total Customers' is expected to reach 639,082, compared to 633,000 a year ago [4] - The 'Average Revenue Per Customer (ARPU)' is anticipated to be $101.08, an increase from $92.06 reported in the same quarter last year [4] - 'Annual Run-Rate Revenue (ARR)' is projected to be $796.60 million, up from $713 million in the same quarter last year [5] Market Performance - Over the past month, DigitalOcean shares have recorded a return of +6.7%, outperforming the Zacks S&P 500 composite's +1.8% change [5] - Based on its Zacks Rank 4 (Sell), DOCN is expected to underperform the overall market in the upcoming period [5]

Core Insights - The article highlights the potential investment opportunities in smaller AI-related companies, particularly DigitalOcean and Lemonade, as they leverage AI technologies to enhance their services and drive growth [1][2]. Group 1: DigitalOcean - DigitalOcean focuses on providing cloud computing services specifically for small and mid-sized businesses (SMBs), differentiating itself from larger competitors like Amazon and Microsoft [3]. - The company offers a range of services including data storage, website hosting, and software development tools, with a focus on affordable pricing and personalized service for SMBs [4]. - DigitalOcean's acquisition of Paperspace allows it to provide GPU options for AI developers at competitive prices, with per-second billing and no lock-in contracts [5]. - Recently, DigitalOcean became one of the few cloud providers to offer fractional GPU capacity, making AI deployment accessible for smaller enterprises [6]. - In Q2 2024, DigitalOcean reported a record revenue of $192.5 million, a 13% increase year-over-year, with AI-related revenue growing by 200% [7]. - The stock is currently trading 66% below its all-time high, with a price-to-sales (P/S) ratio of 5.6, indicating a potential entry point for long-term investors [8]. Group 2: Lemonade - Lemonade is transforming the insurance industry by using AI to streamline customer interactions and claims processing, making the experience more efficient [9]. - The company utilizes an AI chatbot, Maya, to provide quotes quickly, and AI Jim to handle claims in under three minutes without human intervention [10]. - Lemonade reached a record of 2.1 million customers by the end of Q2, particularly appealing to younger demographics [11]. - The company employs AI for its Lifetime Value (LTV) models to predict customer behavior and set fair premiums, continuously improving its models for better accuracy [12]. - In Q2, Lemonade's in-force premium reached $839 million, leading to $122 million in revenue, a 17% increase from the previous year, and positive net cash flow of $4 million [13]. - The company reduced its workforce by 9% while increasing its insurance book by 22%, showcasing the efficiency gained through AI [14]. - Lemonade's stock trades at a P/S ratio of 2.5, near its historical lows, with plans for expansion into additional European markets, indicating potential for future growth [15].

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][6]. Earnings Estimates and Revisions - The Zacks Consensus Estimate for DigitalOcean for the fiscal year ending December 2024 is projected at $1.67 per share, reflecting a 5% increase from the previous year's reported figure [9]. - Over the past three months, the Zacks Consensus Estimate for DigitalOcean has increased by 10.7%, indicating a positive trend in earnings expectations [9]. Zacks Rating System - The Zacks rating system is based on changes in earnings estimates, which are crucial for predicting near-term stock price movements [2][3]. - The system classifies stocks into five groups, with Zacks Rank 1 (Strong Buy) 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, suggesting a strong potential for market-beating returns in the near term [10][11].

Core Insights - DigitalOcean Holdings Inc. is a cloud infrastructure provider that supports enterprises and developers in building, deploying, and scaling applications affordably and flexibly [1][6] - The company competes with major hyperscalers like Microsoft, Alphabet, and Amazon in the computer and technology sector [2] - DigitalOcean's services include Infrastructure as a Service (IaaS), which allows businesses to rent computing resources instead of purchasing them, making it a cost-effective solution [3][2] Financial Performance - For Q2 2024, DigitalOcean reported earnings per share (EPS) of 48 cents, exceeding analyst expectations by 9 cents [6] - Revenue for the same quarter grew 13.1% year-over-year to $192 million, surpassing the consensus estimate of $188.63 million [6] - The annual run rate (ARR) increased by 15% year-over-year to $781 million [6] Stock Forecast and Analyst Ratings - The 12-month stock price forecast for DigitalOcean is $37.67, indicating a potential downside of 6.70% from current levels [6][46] - Analysts have set a high price target of $47.00 and a moderate buy rating based on 10 ratings, with five buy and five hold ratings [46][42] - For Q3 2024, EPS is expected to be between 39 cents and 41 cents, with revenues projected between $196 million and $197 million, both above consensus estimates [43][42] Product Offerings - DigitalOcean's Droplets are customizable virtual machines that provide scalable computing power for various applications, including website hosting and data storage [4] - The company also offers GPU Droplets designed for AI and machine learning workloads, providing high-performance computing capabilities [5] Market Position and Strategy - DigitalOcean aims to democratize access to GPU infrastructure and simplify the process of building and consuming AI applications [44] - The company is focused on product innovation and expanding its services to support growing technology companies [44]

Core Viewpoint - DigitalOcean (DOCN) is viewed as a solid long-term investment opportunity for growth investors, despite its stock price facing resistance at $40 per share. The company has shown consistent improvement in financial performance, supported by strong business metrics [2][20]. Financial Performance - DigitalOcean's revenue for the trailing twelve months (TTM) is $735.14 million, with an EBITDA of $225.33 million and free cash flow of $117.95 million, indicating a healthy financial position [4]. - The correlation between revenue growth and EBITDA growth suggests a scalable business model, which is crucial for shareholder value [3]. - The Average Revenue Per User (ARPU) has increased from $79.74 in Q2 2022 to $99.45 in Q2 2024, reflecting enhanced customer value perception [8]. - The Net Dollar Retention Rate (NDR) has stabilized at 97%, indicating strong customer retention and revenue maintenance from existing clients [9]. Customer Base and Strategy - The number of high-value customers (Builders and Scalers) spending over $50 per month has grown to 161,000, contributing 87% of total revenue, showcasing the effectiveness of DigitalOcean's focus on high-value customer segments [10][12]. - The company's strategy emphasizes "value enhancement," encouraging existing customers to adopt additional services, which strengthens customer loyalty and boosts revenue [12]. Valuation and Growth Potential - The P/E ratio is expected to decrease significantly, with a projected forward P/E ratio below 20 for FY2025, indicating that the stock is attractively valued [13]. - A discounted cash flow (DCF) model suggests a target price of $61 per share, representing a 68% upside from the current price, based on a 19% compound annual growth rate (CAGR) for revenue [16]. Financial Health - DigitalOcean's total debt remains stable, with a low interest expense of approximately $9 million, which is about 0.5% of total outstanding debt as of June 30, 2024, indicating a strong financial position to support business expansion [5][7]. - The company's total assets have increased to approximately $1.54 billion, with current assets at $543.72 million, reflecting a solid balance sheet [6]. Market Context - The Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) markets are projected to grow significantly, with expected CAGRs of 20% and 17.7% respectively from 2024 to 2029, positioning DigitalOcean favorably within a growing industry [15].

Core Viewpoint - DigitalOcean Holdings, Inc. (DOCN) shows potential as a stock pick due to its recent technical performance and positive earnings estimate revisions [1][2][3] Technical Analysis - DOCN has surpassed the 200-day moving average, indicating a long-term bullish trend [1] - The stock has reached an important support level, which is a positive sign for traders [1] Stock Performance - Over the past four weeks, DOCN shares have increased by 29.5% [2] - The stock currently holds a Zacks Rank 3 (Hold), suggesting potential for continued upward movement [2] Earnings Estimates - In the last two months, no earnings estimates for DOCN have decreased, while four estimates have increased [2] - The consensus earnings estimate for the current fiscal year has also risen, reinforcing the bullish outlook [2][3] Investment Outlook - The combination of positive earnings revisions and technical indicators suggests that investors should monitor DOCN for potential gains in the near future [3]

Group 1: DigitalOcean - DigitalOcean has focused on developers and small businesses within the cloud computing market, offering a streamlined platform rather than an extensive range of services [2] - The company ended Q2 with 161,000 customers spending at least $50 per month, with quarterly revenue approaching $200 million and growing at a double-digit rate [3] - DigitalOcean's stock has declined 71% since its peak in late 2021, despite a 13% year-over-year revenue growth in Q2 [4] - A new CEO, Paddy Srinivasan, has been appointed to accelerate product development, resulting in the release of 24 new product features in the first half of 2024, double the previous six months [5] - The market opportunity for DigitalOcean is significant, with an estimated $213 billion in annual spending on infrastructure and platform services expected by 2027, and the stock is trading at about 22 times full-year adjusted earnings guidance [6] - DigitalOcean has the potential to significantly increase its revenue over the next decade as it meets the growing demand for cloud computing [7] Group 2: Paycom - Paycom focuses on delivering value to its customers through its payroll and HR software, particularly with its innovative Beti payroll product that allows employees to manage their own payroll [8] - The implementation of Beti has enabled clients to reduce payroll processing time from four days to a few hours, significantly cutting down on HR resources [9] - However, the expansion of Beti has negatively impacted revenue from other sources, resulting in a 9.1% year-over-year revenue growth in Q2 2024 and a 70% decline in stock since late 2021 [10] - Paycom's strategy may appear detrimental in the short term, but it is expected to lead to decreased customer churn and increased loyalty, positioning the company for stronger future growth [11] - The stock is currently trading at approximately 21 times the average analyst estimate for full-year adjusted earnings, presenting a buying opportunity [11]