Entering text into the input field will update the search result below

DigitalOcean: Underperforming In A Competitive Landscape

Mar. 02, 2021 12:33 PM ETDigitalOcean Holdings, Inc. (DOCN)4 Comments
Noah Wilson profile picture
Noah Wilson


  • The public cloud market has an incredible supply glut. DigitalOcean is lucky to have breached a $1 billion valuation but profitability going forward is highly questionable.
  • IaaS companies have high switching costs versus other public cloud companies, but this does not imply that DigitalOcean has a moat. Only time can tell.
  • The company is underperforming or merely good in key metrics, suggesting that, in the least, the company is not exceptional.
  • It will be very hard for the company to maintain a high valuation.

DigitalOcean (NYSE:DOCN), the cloud infrastructure provider to developers, startups, and small-and-medium-sized businesses ("SMBs") filed its S-1 registration form to go public. The filing shows a $100 million placeholder number, which the company will update when it announces its IPO price range target.

The company earned $203.1 million in revenue in 2018, $254.8 million in 2019 and $318.4 million in 2020. By its own calculations, it finished 2020 with an annual run rate ("ARR") of $357 million. DigitalOcean grew its revenues by a compound annual growth rate ("CAGR") of 16.16% between 2018, when it earned over $203 million in revenue and 2020, when it earned more than $318 million in revenue. In that period, it steadily reduced its operating losses, from $27,29 million in 2018, to $29,9 million in 2019 and $15,79 million in 2020. Net losses, on the other hand, have modestly grown, driven by interest expenses and net other expenses: nearly $36 million in 2018, $40,39 million in 2019 and $43,568 million in 2020.

The New York-based cloud company, amidst layoffs in early-2020, was able to conclude a $100 million debt raise, which it followed up in May with $50 million in Series C funding at a $1.15 billion valuation that prior backers Access Industries and Andreessen Horowitz participated in. According to Crunchbase, the company, founded in 2011, has raised a total of $455.6 million throughout its funding rounds. The company envisages a market opportunity worth $116 billion by 2024.

DigitalOcean has a net dollar retention rate of 103%, up from 100% in 2019. The biggest risk that a cloud software company faces, especially during periods of economic difficulty, is downgrades and churn. The most important thing is the preservation of relationships and this is reflected in net dollar retention. The hurdle rate that separates the good from the

This article was written by

Noah Wilson profile picture
I'm an independent investor with experience trading forex, cryptocurrency and stocks. I'm particularly interested in tech and biotech stocks with a long term growth philosophy. Originally from the UK, I worked for Barclays bank in London for 10 years before moving to the East coast of England. I currently run several online businesses while writing about investment as a hobby. None of the views I express should be taken as investment advice and is purely my own musings on a stock's investment potential.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (4)

This is cloud infrastructure play and you can't compare it to all the cloud Saas applications. A lot of companies are moving to multi-cloud solutions which would use Digital Ocean as one of several clouds. Companies don't want their business to go down if there is an outage at AWS or Azure. They want their workload to be spread across multiple cloud providers. This will open up more opportunities for Digital Ocean.
DOCN competes purely on price and is a favorite of tech-savvy small time players that want a cheap and easily accessible sand box to play in.
Digital Ocean has been webhosting forever. Is anyone else surprised they're still losing money?
@twoeyes "Is anyone else surprised they're still losing money?"
Not really. Cloud computing is filled with mega-class players.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.