https://www.barrons.com/articles/digitalocean-stock-earnings-cloud-services-51645728040
DigitalOcean Holdings has been floating on quiet seas since its initial public offering last March. The cloud services provider for small businesses came public at $47 a share, and lately has been trading right around that level.
But DigitalOcean (ticker: DOCN) is beginning to attract some investor attention. Earlier Thursday, the company posted solid fourth quarter financial results, and CEO Yancey Spruill sees multiple years of substantial growth ahead.
For the quarter, DigitalOcean reported revenue of $119.7 million, up 37% from a year ago, and just above the former Wall Street consensus call of $119.1 million. On an adjusted basis, the company earned 10 cents a share, a penny better than analysts anticipated. Adjusted earnings before interest, taxes, depreciation, and amortization were $37.8 million, while annual run-rate revenue, or ARR, was $490 million, also up 37%.
Thursday afternoon, DigitalOcean shares were up 7.7% to $50.56.
For the March quarter, the company expects revenue of $126 million to $126.5 million, with non-GAAP profits of 10 to 12 cents a share, while the Street consensus had been for $126.2 million and 11 cents. For the full year, DigitalOcean projects revenue of $564 million to $568 million, with non-GAAP profits of 70 to 71 cents a share. The former Street consensus call was for $563 million of revenue and a profit of 58 cents a share.
DigitalOcean is a sort of mini version of Amazon.com ‘s (AMZN) Amazon Web Services, providing cloud-computing capability to very small businesses. In the latest quarter, average revenue per customer was $65.87, up 29% from a year earlier. The company now has 609,000 customers, with 99,000 of them paying more than $50 a month. In an interview with Barron’s, Spruill noted that the company had a net dollar retention rate—a measure of repeat business—of 116% in the quarter, up from 105% a year earlier.
Spruill thinks the opportunity to provide cloud services to small businesses is vast. He thinks the company can hit $1 billion in revenue by 2024, with a long-term target of sustaining growth over 30%.
In reporting results, the company also announced a $300 million stock repurchase plan—a fairly unusual move for a company just one year into its public market journey.
Spruill noted that the company is achieving positive free cash flow, and getting more profitable. While free cash flow was 6% of revenue last year, it should reach 8% to 10% this year, he said.
The company exited the year with $1.7 billion in cash, which is about 30% of the company’s market cap, Spruill said, noting that many of the company’s peers in the cloud-based software sector won’t be cash-flow positive for years to come.
Spruill said that while the DigitalOcean offering isn’t as rich in terms of features as what is available from Amazon Web Services and similar large providers, it doesn’t need to be for smaller customers with simpler needs. “We have customers who come to us every month from the hyperscalers,” he says. “It’s a better experience, and they save a lot of money.”
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