DigitalOcean Posts Q4 Beat, Analysts Express Concern Around 2025 Prospects

Shares of DigitalOcean Holdings Inc DOCN were climbing in early trading on Wednesday after the company reported upbeat fourth-quarter results.

Here are some key analyst takeaways.

• Cantor Fitzgerald analyst Thomas Blakey maintained a Neutral rating, while raising the price target from $39 to $43.
• JPMorgan analyst Pinjalim Bora reiterated a Neutral rating, while raising the price target from $40 to $45.
• JMP Securities analyst Patrick Walravens maintained a Market Outperform rating and price target of $55.

Check out other analyst stock ratings.

Cantor Fitzgerald: DigitalOcean delivered a solid quarter, with the NDRR (net dollar retention rate) rising to 99%, Blakey said. The sequential improvement was driven by "large, high-spend customers and new product uptake with over 50% of top 100 customers adopting at least one new feature released in 3Q24," he added.

The company's adjusted EBITDA margins came in at 42%. They surpassed the guidance range of 34%-38% by managing spend and resource allocation when while ramping new products and increased hiring, the analyst stated. "Our optimism is somewhat offset by the downtick in adjusted EBITDA margins in C25, deceleration in small customer count declines, and continued slowdown in lower-spend customer revenue cohort," he further wrote.

JPMorgan: DigitalOcean reported all metrics above consensus, with acceleration in both total revenues and annual recurring revenues (ARR), Bora said. The net-dollar retention rate rose by 200 basis points from the previous quarter, with "strong momentum of its customer cohort that spends $100K/year, in addition to a stable churn rate," he added.

Although DigitalOcean provided its 2025 revenue growth guidance broadly in-line with expectations, its projection for adjusted EBITDA margin of 38.5% at the midpoint came in 130 basis points below consensus, the analyst stated. Revenue growth is likely to be driven by "revenue from new customers, with expansion within existing customers contributing a neutral to slightly positive impact," he further wrote.

JMP Securities: DigitalOcean reported strong quarterly results, with non-GAAP earnings of 49 cents per share, beating consensus of 34 cents per share, and adjusted EBITDA margin of 42%, above consensus of 36%, Walravens said. The company guided to first-quarter non-GAAP earnings of 41 cents to 46 cents per share on adjusted EBITDA margin of 38% to 40%, he added.

DigitalOcean has been enhancing its AI infrastructure offerings, including its new AI platform, which allows users to “create their own AI agents” and its partnership with open-source AI/ML platform Hugging Face, the analyst stated. "DigitalOcean did not break out the ARR contribution from its AI/ML platform," he further wrote.

Price Action: Shares of DigitalOcean had risen by 7.36% to $43.77 at the time of publication on Wednesday.

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