Digitalocean Holdings, Inc. ((DOCN)) has held its Q4 earnings call. Read on for the main highlights of the call.
DigitalOcean Holdings, Inc. recently held its earnings call for the fourth quarter of 2024, revealing a robust performance marked by significant revenue growth and strategic advancements. The sentiment during the call was overwhelmingly positive, with the company showcasing its achievements in revenue growth and product innovation. Despite some initial impacts on gross margins due to new data center investments, DigitalOcean’s profitability remained strong, underscoring a promising outlook.
Record Revenue Growth in Q4 2024
DigitalOcean reported a remarkable revenue growth of 13% year-over-year in the fourth quarter, reaching $205 million. The annual run rate revenue (ARR) climbed to $820 million, with an increase in incremental ARR from $24 million in Q3 to $26 million in Q4. This growth trajectory highlights the company’s successful strategies in expanding its market presence and revenue base.
Net Dollar Retention Improvement
The company achieved an improvement in net dollar retention (NDR), which rose to 99% in Q4 2024 from 96% in the same quarter of the previous year. Notably, the NDR for traditional cloud services reached 100% for the first time since June 2023, indicating strong customer retention and satisfaction.
Strong Growth in Scalers+ Cohort
DigitalOcean’s Scalers+ customer cohort demonstrated impressive growth, representing 22% of overall revenue and growing 37% year-over-year. The number of Scalers+ customers increased by 17%, contributing significantly to the company’s revenue growth.
AI/ML Platform Success
The company’s AI/ML platform exceeded expectations, with Q4 showing over 160% ARR growth. AI-related solutions played a crucial role in driving revenue growth, highlighting DigitalOcean’s strategic focus on innovation and emerging technologies.
Profitability and Cash Flow
DigitalOcean maintained a healthy adjusted EBITDA margin of 42% for both Q4 and the full year, alongside an adjusted free cash flow margin of 18% for Q4. These metrics underscore the company’s strong financial health and operational efficiency.
Challenges in Customer Expansion
Despite notable improvements, customer expansion remains a focus area, transitioning from a headwind to a tailwind. The company is concentrating on enhancing net dollar retention as a key growth driver.
Initial Gross Margin Impact
The upcoming Atlanta data center and investments in AI/ML infrastructure may initially impact gross margins, causing a slight dip before recovery. However, these investments are expected to support long-term growth and profitability.
Forward-Looking Guidance
Looking ahead, DigitalOcean’s 2025 guidance projects full-year revenue growth in the low to mid-teens, with free cash flow margins above 15% to 17%. The company plans to drive growth through customer acquisition and expansion efforts, alongside ongoing investments in key growth initiatives such as their AI/ML platform and the new data center in Atlanta.
In summary, DigitalOcean’s earnings call for Q4 2024 painted a positive picture of the company’s financial health and strategic direction. With strong revenue growth, improved customer retention, and successful product innovations, DigitalOcean is well-positioned for continued success. The company’s forward-looking guidance further reinforces its commitment to growth and profitability, making it an attractive prospect for investors and stakeholders.