Group 1: Earnings Performance - DigitalOcean Holdings, Inc. reported quarterly earnings of $0.48 per share, exceeding the Zacks Consensus Estimate of $0.39 per share, and up from $0.44 per share a year ago, representing an earnings surprise of 23.08% [1] - The company has surpassed consensus EPS estimates for four consecutive quarters [2] - DigitalOcean's revenues for the quarter ended June 2024 were $192.48 million, surpassing the Zacks Consensus Estimate by 2.04%, and up from $169.81 million year-over-year [2] Group 2: Stock Performance and Outlook - DigitalOcean shares have declined approximately 24.5% since the beginning of the year, while the S&P 500 has gained 9% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is $0.41 on revenues of $195.1 million, and for the current fiscal year, it is $1.64 on revenues of $768.81 million [7] Group 3: Industry Context - The Internet - Software industry, to which DigitalOcean belongs, is currently ranked in the top 38% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5] - DigitalOcean currently holds a Zacks Rank 1 (Strong Buy), suggesting that the shares are expected to outperform the market in the near future [6]

Customer Growth and Revenue - As of June 30, 2024, DigitalOcean had approximately 638,000 active customers categorized as Learners, Builders, and Scalers, with a significant increase in Builders and Scalers contributing to revenue growth[68]. - Average Revenue Per User (ARPU) increased from $90.84 in Q2 2023 to $99.45 in Q2 2024, indicating a strong ability to attract higher spending customers[68][78]. - Annual Run-Rate Revenue (ARR) reached $781 million as of June 30, 2024, up from $682 million in the same period of 2023, reflecting a growth of approximately 14.6% year-over-year[68][79]. - Revenue from Builders and Scalers accounted for 87% of total revenue in Q2 2024, up from 86% in Q2 2023, highlighting the importance of these customer segments[69]. - The number of Scalers increased to approximately 18,000 as of June 30, 2024, up from 16,000 in the previous year, while Builders rose to approximately 143,000 from 134,000[69]. Financial Performance - Revenue for the three months ended June 30, 2024, increased by $22.7 million, or 13%, to $192.5 million compared to $169.8 million for the same period in 2023, driven by a 9% increase in ARPU to $99.45[91]. - Revenue for the six months ended June 30, 2024, increased by $42.3 million, or 13%, to $377.2 million compared to $334.9 million for the same period in 2023[94]. - Net income attributable to common stockholders for the three months ended June 30, 2024, was $19.1 million, compared to a net loss of $0.7 million in the same period of 2023[88]. - GAAP net income attributable to common stockholders for the three months ended June 30, 2024, was $19,138 thousand, compared to a loss of $665 thousand for the same period in 2023[113]. - Non-GAAP net income for the six months ended June 30, 2024, was $90,352 thousand, an increase from $74,405 thousand for the same period in 2023, representing a growth of approximately 21.5%[113]. Cost and Expenses - Cost of revenue for the three months ended June 30, 2024, rose by $7.8 million, or 12%, to $75.1 million, primarily due to increased depreciation and amortization costs[91]. - Gross profit margin improved to 61% for the three months ended June 30, 2024, up from 60% in the same period of 2023, attributed to ongoing cost optimization efforts[91]. - Research and development expenses decreased by $4.5 million, or 12%, to $34.0 million for the three months ended June 30, 2024, mainly due to reduced personnel costs[92]. - Sales and marketing expenses increased by $4.0 million, or 25%, to $20.1 million for the three months ended June 30, 2024, driven by higher personnel and advertising costs[92]. - General and administrative expenses decreased by $8.0 million, or 16%, to $40.8 million for the three months ended June 30, 2024, largely due to a reduction in stock-based compensation[92]. Cash Flow and Investments - Net cash provided by operating activities was $138.0 million for the six months ended June 30, 2024, an increase from $100.4 million in 2023[99]. - Net cash provided by investing activities was $12.1 million for the six months ended June 30, 2024, a significant decrease from $243.7 million in 2023[100]. - Net cash used in financing activities was $24.2 million for the six months ended June 30, 2024, compared to $365.0 million in 2023, primarily due to stock repurchases[101]. - As of June 30, 2024, the company had $443.1 million in cash and cash equivalents, primarily consisting of cash and money market funds[97]. Tax and Other Financial Metrics - Income tax expense increased by $14.0 million, or 171%, for the six months ended June 30, 2024, due to U.S. pre-tax income creating a tax expense compared to a tax benefit in 2023[96]. - The company utilized a tax rate of 16% for the fiscal year 2024, compared to 17% for 2023, reflecting a strategic adjustment in tax planning[116]. - Stock-based compensation for the six months ended June 30, 2024, totaled $44,563 thousand, down from $64,023 thousand in the same period of 2023, indicating a reduction of approximately 30.5%[113]. - Non-GAAP diluted net income per share for the three months ended June 30, 2024, was $0.48, compared to $0.44 for the same period in 2023, reflecting an increase of 9.1%[114]. Strategic Initiatives - The company continues to invest in its platform and product offerings, particularly in IaaS, PaaS, SaaS, and AI/ML markets, to drive future growth[73]. - The company is actively pursuing strategies to attract more Builders and Scalers, including marketing initiatives and acquisitions like Cloudways and Paperspace, which enhance its service offerings[72]. - The company approved an additional repurchase program of up to $140 million of common stock through fiscal year 2025[97]. Market and Risk Assessment - Approximately 38% of revenue in Q2 2024 was generated from North America, with 28% from Europe, 23% from Asia, and 11% from the rest of the world, showcasing a diverse revenue base[68]. - There have been no material changes in market risk from the information provided in the Annual Report for the fiscal year ended December 31, 2023[117].

Revenue and Growth - Revenue for Q2 2024 was $192 million, representing a 13% year-over-year increase[2] - Annual Run-Rate Revenue (ARR) reached $781 million, up 15% year-over-year[2] - Average Revenue Per Customer (ARPU) increased to $99.45, a 9% rise compared to Q2 2023[3] - The number of Builders and Scalers increased by 7% year-over-year, contributing to a 15% revenue growth from this segment[3] - DigitalOcean plans to achieve total revenue of $770 to $775 million for the full year 2024[4] - The company initiated guidance for Q3 2024 with expected revenue of $196 to $197 million[4] - Total revenue for Q2 2024 was $192,476, an increase of 13.3% compared to $169,814 in Q2 2023[24] Profitability and Income - Adjusted EBITDA was $82 million, with an adjusted EBITDA margin of 42%[2] - Net income attributable to common stockholders for the first half of 2024 was $33,277, compared to a net loss of $15,705 in the same period of 2023[26] - The company reported a basic net income per share of $0.21 for Q2 2024, compared to $0.01 in Q2 2023[24] - GAAP net income attributable to common stockholders for the three months ended June 30, 2024, was $19,138, compared to $665 for the same period in 2023[27] - Non-GAAP net income for the six months ended June 30, 2024, was $90,352, compared to $74,405 for the same period in 2023, reflecting a 21% increase[29] - Non-GAAP net income per share, diluted, for the three months ended June 30, 2024, was $0.48, compared to $0.44 for the same period in 2023[30] - The company reported a net income margin of 10% for the three months ended June 30, 2024, compared to a loss margin of -% in the same period of 2023[27] Cash Flow and Assets - Cash and cash equivalents increased to $443,110 as of June 30, 2024, from $317,236 at the end of 2023, representing a growth of 39.7%[22] - Total assets grew to $1,536,793 as of June 30, 2024, compared to $1,460,967 at the end of 2023, indicating a 5.2% increase[22] - The company generated $138,033 in net cash provided by operating activities for the first half of 2024, compared to $100,376 in the same period of 2023, an increase of 37.6%[26] - GAAP net cash provided by operating activities for the six months ended June 30, 2024, was $138,033, compared to $100,376 in the same period of 2023[32] Expenses and Investments - Operating expenses decreased to $95,009 in Q2 2024 from $103,961 in Q2 2023, a reduction of 8.5%[24] - Capital expenditures for property and equipment were $75,534 in the first half of 2024, compared to $46,848 in the same period of 2023, reflecting a significant investment in growth[26] - Capital expenditures for property and equipment for the three months ended June 30, 2024, were $31,869, compared to $23,534 in the same period of 2023[32] - Stock-based compensation for the three months ended June 30, 2024, was $21,833, down from $36,429 in the same period of 2023[29] Other Metrics - Net Dollar Retention Rate (NDR) remained stable at 97% compared to the previous quarter[3] - DigitalOcean announced the Early Availability of GPU droplets, enhancing access to NVIDIA H100 instances for approximately 638,000 customers[3] - Adjusted EBITDA for the six months ended June 30, 2024, was $155,910, representing a 22% increase from $127,908 in the same period of 2023[27] - Adjusted EBITDA margin for the three months ended June 30, 2024, was 42%, slightly down from 43% in the same period of 2023[27] - Adjusted free cash flow for the three months ended June 30, 2024, was $37,429, down from $45,104 in the same period of 2023[32]

Core Viewpoint - DigitalOcean (DOCN) is expected to report second-quarter 2024 results on August 8, with projected revenues between $188 million and $189 million, indicating an 11.09% year-over-year growth, while earnings are anticipated to be in the range of 38-40 cents per share, reflecting an 11.36% decline year-over-year [1][2]. Group 1: Financial Performance - The Zacks Consensus Estimate for second-quarter revenues is $188.64 million, suggesting a year-over-year growth of 11.09% [1]. - The consensus for second-quarter earnings has remained at 39 cents, indicating a year-over-year decline of 11.36% [1]. - DigitalOcean has beaten the Zacks Consensus Estimate in each of the last four quarters, with an average earnings surprise of 16.08% [2]. Group 2: Growth Drivers - The anticipated strong performance in the second quarter is attributed to a robust product portfolio, high demand for IaaS and PaaS offerings, and new automated tools [3]. - Investments in network and infrastructure aimed at improving performance and reducing latency are expected to enhance customer appeal and facilitate workload migration [4]. - The integration of Paperspace's AI/ML capabilities is driving demand for AI-related services, contributing positively to performance [4]. Group 3: Product Innovations - Expanding managed services to meet customer needs for scaling capabilities reflects DigitalOcean's commitment to tailored experiences, with the new cloud-based offering, Autonomous, likely driving growth [5]. - The introduction of horizontal scaling for Managed Kafka is expected to enhance clientele growth by enabling customers to manage large volumes of streaming data effectively [6]. Group 4: Annual Recurring Revenue (ARR) - In the first quarter of 2024, Annual Recurring Revenue (ARR) rose to $19 million, primarily from the platform-as-a-service offering, marking a 128% annualized increase driven by AI model training and inferencing demand [7]. - The growing adoption of DigitalOcean's AI platform-as-a-service and infrastructure-as-a-service for various applications is expected to further drive ARR growth [8]. Group 5: Earnings Expectations - According to the Zacks model, DigitalOcean has a positive Earnings ESP of +2.19% and a Zacks Rank 1 (Strong Buy), indicating a favorable outlook for an earnings beat [9].

Core Viewpoint - DigitalOcean has demonstrated a strong track record of exceeding earnings estimates, indicating positive momentum in its financial performance [1][6]. Earnings Performance - DigitalOcean has surpassed earnings estimates by an average of 16.04% over the last two quarters [1]. - In the most recent quarter, the company reported earnings of $0.43 per share against an expectation of $0.38, resulting in a surprise of 13.16% [7]. - For the previous quarter, the consensus estimate was $0.37 per share, while the actual earnings were $0.44, leading to a surprise of 18.92% [7]. Earnings ESP and Analyst Sentiment - DigitalOcean currently has an Earnings ESP of +2.19%, suggesting a bullish outlook from analysts regarding its near-term earnings potential [3]. - The combination of a positive Earnings ESP and a Zacks Rank 1 (Strong Buy) indicates a high likelihood of another earnings beat in the upcoming report [3][8]. Importance of Earnings ESP - The Earnings ESP metric is crucial for predicting earnings surprises, as it compares the Most Accurate Estimate to the Zacks Consensus Estimate [9]. - A positive Earnings ESP enhances the predictive power of potential earnings beats, especially when supported by a solid Zacks Rank [8].

AI Hardware and Software Landscape - The AI revolution consists of two main components: hardware, which includes advanced semiconductors in data centers, and software, which encompasses applications like chatbots and cloud computing services [1] - Nvidia is a leading player in AI chips, particularly with its GPUs, while Micron focuses on memory and storage chips that are increasingly vital in the AI sector [2] Micron Technology - Micron reported $6.8 billion in revenue for the fiscal 2024 third quarter, marking an 81% increase year-over-year, driven by AI demand [3] - The company's compute and networking business saw an 85% revenue growth, and its mobile segment revenue increased by 94% [3] - Micron's HBM3E memory solution is utilized by Nvidia's new H200 GPU, which performs AI inferencing at double the speed of the H100 while consuming half the energy [7] - The company’s high-bandwidth memory is sold out for 2024 and 2025, indicating strong pricing power and potential for revenue and earnings growth [7] - Wall Street anticipates Micron will generate $9.54 in earnings per share for fiscal 2025, resulting in a forward P/E ratio of 14 [18] DigitalOcean - DigitalOcean is positioned in the cloud computing sector, catering primarily to small and mid-sized businesses with affordable and transparent pricing [9][19] - The company expects to generate up to $775 million in total revenue during 2024, with a significant addressable market valued at $114 billion [10] - DigitalOcean's acquisition of Paperspace for $111 million aims to enhance AI accessibility for budget-conscious customers, offering services at prices up to 70% lower than competitors like Microsoft Azure [15] - The annual recurring revenue for DigitalOcean's AI services surged at an annualized rate of 128% from December 2023 to March 2024, indicating strong demand [20] Market Outlook - The cloud computing industry is dominated by major players like Amazon and Microsoft, but DigitalOcean's niche focus allows it to serve smaller businesses effectively [4] - Estimates suggest that over three-quarters of businesses are already using or experimenting with AI, which could lead to significant revenue growth for companies like DigitalOcean [5] - The iShares Semiconductor ETF has a P/E ratio of 39.1, implying that Micron's stock would need to increase by 179% to align with industry peers, highlighting the potential for growth if AI adoption continues [8] - The AI sector is projected to add trillions of dollars to the global economy in the next decade, making investments in both hardware and software companies attractive [16]

Core Insights - DigitalOcean has set ambitious financial goals for 2024, targeting revenue of $1 billion, over 30% revenue growth, and a free cash flow margin of 20% [1] - The company has only tapped into less than 1% of its market, indicating significant growth potential [2] - DigitalOcean's growth has lagged behind the industry, with competitive risks from larger cloud-computing platforms [3] Financial Performance - DigitalOcean's current market valuation is approximately $3 billion, and it has a steady revenue growth with strong margins, although not all plans are proceeding as expected [6] - For the first quarter of 2024, the company projects full-year revenue of $775 million, representing 12% growth, with an adjusted free cash flow margin expected between 19% to 21% [14] - The company anticipates a compound annual growth rate of about 14.5% to double its revenue in five years, but it only expects 12% growth this year [10] Customer Base and Market Opportunity - DigitalOcean targets small businesses with fewer than 500 employees, offering Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS), with a projected market opportunity of $213 billion by 2027, growing at a 23% compound annual rate from 2024 [8] - The customer composition shows that 75% of its 637,000 customers are "learners," contributing only 11% of revenue, while less than 3% are "scalers," accounting for 56% of revenue [16] AI and Competitive Landscape - The demand for AI tools is strong on DigitalOcean's platform, but investments in AI may impact profit margins, as seen in other infrastructure companies [12][11] - The AI boom may require all cloud-computing platforms to offer AI tools, which necessitates significant investment in infrastructure [19]

Core Viewpoint - The article discusses the potential investment opportunities and risks associated with DigitalOcean, highlighting its market position and financial performance [1]. Company Overview - DigitalOcean is recognized for its cloud infrastructure services, catering primarily to developers and small to medium-sized businesses [1]. - The company has been recommended by The Motley Fool, indicating a positive outlook from investment analysts [1]. Financial Performance - The article does not provide specific financial metrics or performance data for DigitalOcean, but it implies that the company has a favorable standing in the market [1]. - There is an indication of potential growth opportunities within the cloud services sector, which DigitalOcean is positioned to capitalize on [1].

Core Insights - The tech sector continues to offer significant investment opportunities, particularly in smaller and lesser-known stocks compared to established giants like Nvidia, Microsoft, and Apple [1] Group 1: Reddit - Reddit's revenue increased by 48% year-over-year in Q1 2024, with daily active unique users growing by 37% to 82.7 million, and it achieved a positive adjusted EBITDA [2] - Major events such as the COVID-19 pandemic and various geopolitical situations have driven user growth on the platform [2] - Analysts project Reddit's revenue and adjusted EBITDA to rise by 22% and 91%, respectively, in 2025, indicating a reasonable valuation at 4 times next year's sales and 22 times adjusted EBITDA [10] Group 2: Fiverr International - Fiverr's revenue growth slowed to 7% in 2023, down from 13% in 2022 and 57% in 2021, but adjusted EBITDA more than doubled to $59 million [3][11] - Analysts expect Fiverr's revenue and adjusted EBITDA to grow by 6% and 20%, respectively, in 2024, and by 11% and 24% in 2025 as the macro environment stabilizes [12] - The stock trades at just 2 times this year's sales, suggesting potential for multibagger gains if the gig economy rebounds [12] Group 3: DigitalOcean - DigitalOcean's revenue grew by 20% in 2023, a decline from 34% in 2022 and 35% in 2021, with analysts expecting revenue and adjusted EBITDA growth of 11% and 5%, respectively, in 2024 [5][14] - The company focuses on providing affordable cloud infrastructure for smaller customers and has added AI processing capabilities through the acquisition of Paperspace [13] - Analysts anticipate revenue and adjusted EBITDA to rise by 13% and 14%, respectively, in 2025 as macro headwinds ease [14]

Core Insights - LinkDaddy has expanded its partnership with DigitalOcean to enhance its Cloud Authority backlink services for clients [1][2] - The collaboration aims to improve search engine performance and domain authority by leveraging trusted cloud platforms [2][3] Group 1: Partnership Details - LinkDaddy's partnership with DigitalOcean allows for the provision of high-quality interlinking of relevant content through various cloud hosting services [1][2] - DigitalOcean has been operational since 2012 and has expanded its services globally, catering to the growing demand for affordable cloud computing solutions [2] Group 2: Service Offerings - The partnership enables LinkDaddy to diversify link profiles and expand traffic sources for businesses, enhancing their online reputation [3] - LinkDaddy employs a seven-stage process for creating cloud authority backlinks, starting with high-quality content based on client-selected keywords [3][4] Group 3: SEO Practices - All backlinks created by LinkDaddy adhere to white hat SEO practices, ensuring compliance with Google guidelines [4] - Clients can expect to see noticeable results within seven days of implementing the backlink strategy [4] Group 4: Package Options - LinkDaddy offers various packages, including one that provides search engine optimized content, images, keywords, and multiple DoFollow SEO backlinks [5] - The package includes cloud hosting options from major providers such as Microsoft Azure and DigitalOcean [5]