DigitalOcean Growth Rate Ticks Higher

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]