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DigitalOcean Holdings (DOCN)
NYSE:DOCN
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DigitalOcean Holdings
(NYSE:DOCN)
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Rating:68Neutral
Price Target:
$59.00
▲(8.36% Upside)
Action:ReiteratedDate:02/24/26
DOCN scores highest on forward outlook from the latest earnings call (raised growth and profitability/FCF guidance, strong ARR momentum), but the overall score is held back by weaker financial resilience (negative equity and sharply lower free cash flow) and only moderately supportive technical/valuation signals.
Positive Factors
Improved profitability and strong gross margins
DigitalOcean's TTM net margin (~29%) and ~60% gross margin represent a durable profitability inflection. Structurally higher margins boost operating leverage and recurring cash generation, enabling sustained reinvestment in product and capacity while supporting medium-term free cash flow targets.
Record organic ARR and large-customer expansion
Record organic ARR additions and material acceleration in large-account ARR demonstrate sticky, recurring demand. High NDR and rapid growth in million-dollar customers indicate strong upsell and retention dynamics, improving revenue predictability and supporting durable revenue growth over the next several quarters.
Committed capacity to support scaled growth
Having 31 MW of committed capacity reduces supply-side constraints and aligns infrastructure with management's 30% growth target. This structural capacity commitment supports predictable onboarding of AI and enterprise customers and underpins durable revenue expansion as utilization ramps.
Negative Factors
Weak balance sheet (negative equity)
Negative stockholders' equity is a material structural weakness that destabilizes leverage measures and limit financial flexibility. In adverse scenarios it constrains borrowing capacity, raises financing costs, and narrows strategic options for capital deployment or opportunistic M&A over the medium term.
Sharp decline in free cash flow
A ~78% YoY drop in free cash flow despite positive operating cash flow signals weaker cash conversion after investment and working-capital impacts. Persistently depressed FCF would reduce internal funding for capacity and product investment, increasing reliance on external financing and pressuring liquidity resilience.
Front-loaded capacity ramp and execution risk
The front-loaded 31 MW ramp creates structural timing risk: costs (leases, GPU depreciation) precede revenue, compressing margins and temporarily increasing net leverage above 4x. Supply-chain or implementation delays could prolong margin pressure and financing strain until utilization normalizes.
DigitalOcean Holdings (DOCN) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$5.01B
Dividend YieldN/A
Average Volume (3M)3.63M
Price to Earnings (P/E)42.9
Beta (1Y)1.59
Revenue Growth14.20%
EPS Growth204.86%
CountryUS
Employees1,210
SectorTechnology
Sector Strength88
IndustrySoftware - Infrastructure
Share Statistics
EPS (TTM)0.44
Shares Outstanding91,996,090
10 Day Avg. Volume3,897,413
30 Day Avg. Volume3,633,057
Financial Highlights & Ratios
PEG Ratio0.08
Price to Book (P/B)-153.44
Price to Sales (P/S)4.88
P/FCF Ratio25.93
Enterprise Value/Market Cap1.10
Enterprise Value/Revenue6.09
Enterprise Value/Gross Profit10.17
Enterprise Value/Ebitda13.40
Forecast
1Y Price Target
$75.00Price Target Upside37.74% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering14
EPS Forecast (FY)1
Revenue Forecast (FY)$1.09B
DigitalOcean Holdings Business Overview & Revenue Model
Company DescriptionDigitalOcean Holdings, Inc., through its subsidiaries, operates a cloud computing platform in North America, Europe, Asia, and internationally. Its platform provides on-demand infrastructure and platform tools for developers, start-ups, and small and medium size businesses. The company offers infrastructure solutions across compute, storage, and networking, as well as enables developers to extend the native capabilities of its cloud with fully managed application, container, and database offerings. Its users include software engineers, researchers, data scientists, system administrators, students, and hobbyists. The company's customers use its platform in various industry verticals and for a range of use cases, such as web and mobile applications, website hosting, e-commerce, media and gaming, personal web projects, managed services, and others. DigitalOcean Holdings, Inc. was incorporated in 2012 and is headquartered in New York, New York.
How the Company Makes MoneyDigitalOcean generates revenue primarily through a subscription-based model, where customers pay for cloud services on a usage basis. Key revenue streams include payments for Droplets, Kubernetes services, managed databases, and object storage. The company also offers additional services such as monitoring and networking solutions, which further contribute to its earnings. DigitalOcean's pricing is designed to be transparent and predictable, appealing to developers and businesses looking for cost-effective solutions. Significant partnerships with educational platforms and developer communities enhance its outreach and customer acquisition, driving recurring revenue and customer loyalty.
DigitalOcean Holdings Key Performance Indicators (KPIs)
Any
Dollar-Based Net Retention Rate
Indicates how much revenue is retained from existing customers, reflecting customer satisfaction and the potential for upselling.
Indicates how much revenue is retained from existing customers, reflecting customer satisfaction and the potential for upselling.
Data provided by:
The Fly
The FlyDigitalOcean Holdings Earnings Call Summary
Earnings Call Date:Feb 24, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:May 12, 2026
Earnings Call Sentiment Positive
The call presents a strongly positive outlook driven by accelerating revenue growth, record organic ARR additions, strong customer expansion (notably AI-native and large accounts), robust profitability (42% adjusted EBITDA margin) and healthy cash generation. Management provided upgraded guidance (21% growth target for 2026 midpoint, exit 25%+, and a path to 30% in 2027) and committed incremental capacity (31 MW) to support that growth. Key near-term risks include margin compression and higher reported leverage as new data center and GPU capacity is brought online (timing and supply-chain risks), a $13M ARR legacy product wind-down, and remaining 2026 convertible note actions. On balance, the highlights materially outweigh the lowlights given growth acceleration, strong margins, product traction, and a plan to finance capacity responsibly.Q4-2025 Updates
Positive Updates
Revenue Growth and Run Rate Milestone
Full-year 2025 revenue reached $901,000,000 with Q4 revenue of $242,000,000, up 18% year-over-year. Company crossed a $1 billion revenue run rate in December 2025.
Record Organic ARR Addition and Trailing ARR Momentum
Delivered a record $51,000,000 incremental organic ARR in Q4 and $150,000,000 on a trailing twelve-month basis, the highest in company history.
Top Customer Acceleration (DNE Cohort)
DNE (digital-native enterprise) ARR reached $640,000,000 (62% of total ARR), growing 30% YoY. Million-dollar customers reached $133,000,000 in ARR, growing 123% YoY. NDR for large cohorts: $100k customers 102% NDR (58% growth), $500k customers 106% NDR (97% growth), $1M customers 115% NDR with churn averaging 0% over the last 12 months.
AI Customer Traction
AI customer ARR was $120,000,000 in Q4, growing 150% YoY and representing 12% of total ARR. 70% of AI customer ARR came from inference services or general-purpose cloud (non-bare metal) rather than bare metal GPU rentals.
Strong Profitability and Cash Generation
Full-year adjusted EBITDA of $375,000,000 with a 42% adjusted EBITDA margin; Q4 adjusted EBITDA margin was 41%. Trailing twelve-month adjusted free cash flow was $168,000,000 (19% of revenue). Gross margin: 59% in Q4 and 60% for full year.
Raised Near-Term and Long-Term Guidance
2026 revenue growth guidance raised to 19%–23% (21% midpoint) with an exit growth target of 25%+ in Q4 2026 and a path to 30% growth in 2027 using existing committed capacity. 2026 guidance projects 36%–38% adjusted EBITDA margins and 18%–20% unlevered adjusted free cash flow margins ($207,000,000 at midpoint).
Committed Capacity to Enable Growth
Committed incremental 31 megawatts of data center capacity coming online in 2026 (smallest 6 MW ramping in Q2, remaining ~25 MW ramping in H2 2026); company guides that existing committed capacity supports the 30% 2027 growth target.
Product and Customer Technical Wins
Notable production wins and performance: Character AI saw 100% throughput increase and ~50% lower cost per token on DigitalOcean's inference cloud (AMD Instinct GPUs) on live traffic; Hippocratic AI selected platform for HIPAA-compliant clinical AI workloads (NVIDIA optimization). OpenClaw adoption: ~30,000 one‑click OpenClaw GPU droplets launched soon after release.
Operational & Talent Investments
Expanded product and engineering capabilities (agent development kit, agent evaluation tools, GPU observability, managed NFS, multi-node GPU support, remote MCP support) and hired Vinay Kumar as Chief Product & Technology Officer (founding OCI member) to accelerate platform buildout.
Balance Sheet Actions and Capital Allocation
Strengthened liquidity with an $800,000,000 bank facility, issued $625,000,000 of 2030 convertible notes, repurchased most 2026 convertibles; repurchased 2.4M shares for $82,000,000 in 2025 (SBC down to 9% of revenue from 12% prior year). Entered 2025 with ~3.2x net leverage.
Negative Updates
Near-Term Margin Pressure from Capacity Ramp
Bringing 31 MW online in 2026 will front-load data center lease expense and GPU depreciation months before associated revenue ramps, causing near-term gross margin and adjusted EBITDA compression; company explicitly forecasts some margin pressure during the ramp.
Short-Term Increase in Net Leverage and Financing Timing
Net leverage expected to rise above 4x in the short term as finance leases for GPU/CPU investments increase net debt; company expects to return below 4x over the medium-to-long term as utilization ramps.
Remaining Convertible Note Maturity
Approximately $312,000,000 of 2026 convertible notes remain outstanding and are expected to be repurchased or redeemed for cash by or before December 2026 (management drawing down remaining $120,000,000 on term loan A to address this).
Product/ARR Headwind from Sunsetting Legacy Offering
Sunsetting a legacy dedicated bare metal CPU offering will result in approximately $13,000,000 of ARR rolling off by end of 2026 (excluded from customer-specific YoY growth metrics).
Execution & Supply Risks
Capacity ramp has supply chain and implementation timing risks that could impact the planned revenue ramp timing; management notes increased data center and equipment costs are present but within expected economics.
Mix Impact from AI Revenue
Growing AI revenue (inferencing-heavy customers) is higher-growth but has lower margins than core cloud, which will modestly reduce ARR-per-megawatt and margin as AI mix increases (management estimates ARR-per-MW could decline from ~$22M today to around ~$20M by end of 2027 as AI mix grows).
Competitive and Fast-Moving Market
Inference market is crowded (Neo clouds, inference APIs/wrappers, hyperscalers); while company cites differentiation, rapid evolution of open-source and closed-source models and varied customer routing needs create ongoing operational complexity and a moving target for product requirements.
Company Guidance
DigitalOcean guided Q1 2026 revenue of $249–250M (~18–19% YoY), Q1 adjusted EBITDA margin of 36–37% and non‑GAAP diluted EPS of $0.22–0.27 on ~111–112M diluted shares; for full‑year 2026 it expects revenue growth of 19–23% (21% midpoint; 21–24% excluding a ~$13M ARR legacy bare‑metal CPU roll‑off), adjusted EBITDA margin of 36–38%, unlevered adjusted free cash flow margin of 18–20% (≈$207M at midpoint), non‑GAAP diluted EPS of $0.75–1.00 (111–112M shares), and to exit Q4 2026 at 25%+ growth. Management is bringing 31 MW of incremental capacity online (6 MW beginning to ramp in Q2, the remainder ramping in H2), noted Q4 RPO of $134M (up 121% sequentially, ~500% YoY), warned of near‑term gross‑margin and EBITDA pressure and short‑term net leverage above 4× from lease/depreciation timing, and reiterated a path to 30% revenue growth in 2027 with 20%+ unlevered adjusted free cash flow margins (a “rule of 50+” outcome).DigitalOcean Holdings Financial Statement Overview
Summary
Profitability has improved sharply (TTM net margin ~29% with ~60% gross margin), and operating cash flow is solid, but the balance sheet is a material weakness with negative stockholders’ equity and sharply lower free cash flow (down ~78% YoY), reducing financial flexibility.Income Statement
DOCN shows a strong profitability inflection. Revenue in TTM (Trailing-Twelve-Months) is up modestly (+4.3%), but margins are notably higher versus prior years: net margin is ~29% in TTM (Trailing-Twelve-Months) versus ~11% in 2024 and ~3% in 2023, with healthy gross margin near ~60% and improved operating profitability. The key weakness is the clear deceleration in revenue growth (from ~20–35% historically to low-single-digits in TTM), which raises execution and demand-risk if margin gains prove non-recurring.78
Positive
Balance Sheet
The balance sheet remains the primary concern. Stockholders’ equity is negative in TTM (Trailing-Twelve-Months) (and also negative in 2023–2024), which makes leverage metrics unstable and indicates limited balance-sheet cushion. While total debt declines meaningfully from 2024 to TTM (Trailing-Twelve-Months), leverage is still a risk given the negative equity position and reduces financial flexibility in a downturn.32
Negative
Cash Flow
Cash generation is mixed. Operating cash flow is solid and improving (TTM (Trailing-Twelve-Months) operating cash flow is higher than 2024), and operating cash flow roughly covers reported earnings in TTM (Trailing-Twelve-Months). However, free cash flow has fallen sharply in TTM (Trailing-Twelve-Months) (down ~78% year over year), indicating weaker cash conversion after investment and working-capital effects, which tempers overall cash-flow quality despite positive free cash flow.56
Neutral
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 901.43M | 780.62M | 692.88M | 576.32M | 428.56M |
| Gross Profit | 539.59M | 465.94M | 408.92M | 364.39M | 257.97M |
| EBITDA | 362.05M | 236.86M | 153.59M | 86.74M | 73.92M |
| Net Income | 259.26M | 84.49M | 19.41M | -27.80M | -19.50M |
Balance Sheet | |||||
| Total Assets | 1.84B | 1.64B | 1.46B | 1.82B | 2.10B |
| Cash, Cash Equivalents and Short-Term Investments | 254.47M | 428.45M | 411.77M | 864.23M | 1.71B |
| Total Debt | 730.55M | 1.70B | 1.66B | 1.64B | 1.46B |
| Total Liabilities | 1.87B | 1.84B | 1.77B | 1.77B | 1.52B |
| Stockholders Equity | -28.69M | -202.96M | -313.70M | 47.57M | 578.20M |
Cash Flow | |||||
| Free Cash Flow | 169.75M | 96.20M | 110.13M | 74.94M | 24.02M |
| Operating Cash Flow | 309.60M | 282.73M | 234.94M | 195.15M | 133.11M |
| Investing Cash Flow | -268.29M | -94.81M | 401.15M | -1.15B | -113.61M |
| Financing Cash Flow | -216.91M | -76.45M | -468.90M | -610.36M | 1.59B |
DigitalOcean Holdings Technical Analysis
Neutral
54.45
Price Trends
56.55
Negative
50.48
Positive
40.88
Positive
Market Momentum
-0.96
Positive
43.88
Neutral
16.02
Positive
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DOCN, the sentiment is Neutral. The current price of 54.45 is below the 20-day moving average (MA) of 61.01, below the 50-day MA of 56.55, and above the 200-day MA of 40.88, indicating a neutral trend. The MACD of -0.96 indicates Positive momentum. The RSI at 43.88 is Neutral, neither overbought nor oversold. The STOCH value of 16.02 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for DOCN.
DigitalOcean Holdings Risk Analysis
DigitalOcean Holdings disclosed 58 risk factors in its most recent earnings report. DigitalOcean Holdings reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
DigitalOcean Holdings Peers Comparison
UnderperformOutperform
Sector (61)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
73 Outperform | $3.42B | 21.00 | 35.56% | ― | 22.02% | 12.42% | |
70 Outperform | $1.47B | 30.33 | 19.01% | 1.33% | 10.27% | 3.52% | |
68 Neutral | $5.01B | 42.89 | ― | ― | 14.20% | 204.86% | |
66 Neutral | $2.39B | 82.10 | 9.31% | ― | 24.71% | 99.52% | |
61 Neutral | $37.18B | 12.37 | -10.20% | 1.83% | 8.50% | -7.62% | |
60 Neutral | $2.42B | -78.26 | -9.95% | ― | 11.05% | 45.23% |
* Technology Sector Average
DOCN
DigitalOcean Holdings
54.45
17.50
47.36%
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20.47
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21.04
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DLO
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11.61
3.35
40.56%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.