Core Viewpoint - DigitalOcean Holdings, Inc. reported quarterly earnings of $0.52 per share, exceeding the Zacks Consensus Estimate of $0.40 per share, and showing an increase from $0.44 per share a year ago, representing a 30% earnings surprise [1] Financial Performance - The company achieved revenues of $198.48 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 0.96%, and up from $177.06 million year-over-year [2] - Over the last four quarters, DigitalOcean has consistently exceeded consensus EPS estimates [2] Stock Performance - DigitalOcean shares have increased approximately 11.3% since the beginning of the year, while the S&P 500 has gained 20.1% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.36 on revenues of $199.84 million, and for the current fiscal year, it is $1.67 on revenues of $773.63 million [7] - The trend of estimate revisions for DigitalOcean has been unfavorable leading up to the earnings release [6] Industry Context - The Internet - Software industry, to which DigitalOcean belongs, is currently ranked in the top 34% of over 250 Zacks industries, suggesting a favorable environment for stocks in this sector [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]

| --- | --- | |--------------------------------|-------| | | | | | | | | | | 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]