Cloud computing provider DigitalOcean (NYSE: DOCN) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 13.3% year on year to $192.5 million. The company expects next quarter's revenue to be around $196.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.48 per share, improving from its profit of $0.43 per share in the same quarter last year.
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DigitalOcean (DOCN) Q2 CY2024 Highlights:
- Revenue: $192.5 million vs analyst estimates of $188.6 million (2% beat)
- EPS (non-GAAP): $0.48 vs analyst estimates of $0.39 (22.2% beat)
- Revenue Guidance for Q3 CY2024 is $196.5 million at the midpoint, roughly in line with what analysts were expecting
- The company slightly lifted its revenue guidance for the full year from $767.5 million to $772.5 million at the midpoint
- Gross Margin (GAAP): 61%, in line with the same quarter last year
- Free Cash Flow of $71.34 million, up 108% from the previous quarter
- Annual Recurring Revenue: $781 million at quarter end, up 14.6% year on year
- Net Revenue Retention Rate: 97%, in line with the previous quarter
- Billings: $193.8 million at quarter end, up 14.1% year on year
- Market Capitalization: $2.52 billion
“We have delivered another strong quarter of business results and exciting product announcements. In Q2 we saw revenue growth continue to re-accelerate at 13%, with AI/ML continuing to accelerate with ARR up over 200% year-over-year, and expanded our leadership team by adding a Chief Product and Technology Officer to accelerate innovation, a Chief Ecosystem and Growth Officer to drive growth and engagement within our developer community and a Chief Revenue Officer to fortify our go-to-market functions,” said Paddy Srinivasan, CEO of DigitalOcean.
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Data Storage
Data is the lifeblood of the internet and software in general, and the amount of data created is accelerating. As a result, the importance of storing the data in scalable and efficient formats continues to rise, especially as its diversity and associated use cases expand from analyzing simple, structured datasets to high-scale processing of unstructured data such as images, audio, and video.
Sales Growth
As you can see below, DigitalOcean's 26.2% annualized revenue growth over the last three years has been solid, and its sales came in at $192.5 million this quarter.
This quarter, DigitalOcean's quarterly revenue was once again up 13.3% year on year. We can see that DigitalOcean's revenue increased by $7.75 million quarter on quarter, which is a solid improvement from the $3.86 million increase in Q1 CY2024. This re-acceleration of growth was a great sign.
Next quarter's guidance suggests that DigitalOcean is expecting revenue to grow 11% year on year to $196.5 million, slowing down from the 16.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.9% over the next 12 months before the earnings results announcement.
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Product Success
One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
DigitalOcean's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 97% in Q2. This means DigitalOcean's revenue would've decreased by 3% over the last 12 months if it didn't win any new customers.
DigitalOcean's already weak net retention rate has been dropping the last year, signaling that some customers aren't satisfied with its products, leading to lost contracts and revenue streams.
Key Takeaways from DigitalOcean's Q2 Results
We enjoyed seeing DigitalOcean exceed analysts' ARR (annual recurring revenue) expectations this quarter. We were also excited its billings outperformed Wall Street's estimates. Overall, this quarter was mixed but with some key positives. The stock traded up 4.7% to $30.47 immediately after reporting.
DigitalOcean may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.