- Needham analyst Mike Cikos reiterated a Buy rating on DigitalOcean Holdings, Inc DOCN and a $36 price target, a week after initiating the coverage.
- Cikos understood investor concerns about the implied slowdown in 2HCY23 growth. However, the analyst acknowledged that management's targeted 30% growth has been on a full-year basis affording the company 'wiggle-room' for certain quarters falling below the 30% threshold.
- Related: DigitalOcean's 30%-Plus Revenue Growth & 20% FCF Margin Attainable In CY24, Analyst Says
- The analyst believes the preliminary CY23 guidance commentary from management is the most exciting puzzle.
- Investors questioned CY23 guidance amid a more challenging macro environment.
- First, it indicates management's confidence in the business and the first half of next year, where DigitalOcean's financials will still benefit from the price increase and Cloudways acquisition.
- Second, it should provide investors with goalposts for framing the CY23 conversation, effectively reducing share price volatility given the long lead time until DigitalOcean reports Q4 earnings.
- Third, the analyst views the CY23 guidance commentary as an implicit nod to the company's line-of-sight in executing against the 30% growth bogie.
- Using management's CY24 targets for $1 billion in revenue and $200 million in free cash flow implies the stock is trading at 4.0x EV/Sales and 20.0x EV/FCF, which makes DigitalOcean one of the cheapest companies in the analyst's coverage while generating strong FCF.
- As an additional point to CY23 revenue growth, the analyst believes investors did not assume any contribution from improved pricing and packaging or product enhancements to crucial areas like Storage.
- Cikos believe this is appropriate as initiatives sound early on both fronts.
- However, both efforts have the potential to positively impact CY23 growth, providing another growth lever.
- Also Read: DigitalOcean Expands Overseas Reach With New Data Center In Sydney
- Price Action: DOCN shares traded lower by 6.67% at $27.97 on the last check Thursday.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Loading...
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
|---|
Benzinga simplifies the market for smarter investing
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
Join Now: Free!
Already a member?Sign in
