DigitalOcean's (NYSE:DOCN) Q4 Earnings Results: Revenue In Line With Expectations But Stock Drops 14.7%

Adam Hejl /
2022/02/24 7:32 am EST

Cloud computing provider DigitalOcean (NYSE: DOCN) reported results in line with analyst expectations in Q4 FY2021 quarter, with revenue up 36.7% year on year to $119.6 million. The company expects that next quarter's revenue would be around $126.2 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. DigitalOcean made a GAAP loss of $12.1 million, down on its loss of $9.3 million, in the same quarter last year.

Is now the time to buy DigitalOcean? Access our full analysis of the earnings results here, it's free.

DigitalOcean (DOCN) Q4 FY2021 Highlights:

  • Revenue: $119.6 million vs analyst estimates of $119 million (small beat)
  • EPS (non-GAAP): $0.10 vs analyst estimates of $0.09 (10.2% beat)
  • Revenue guidance for Q1 2022 is $126.2 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2022 is $566 million at the midpoint, in line with analyst expectations and predicting 32% growth (vs 34.4% in FY2021)
  • Free cash flow of $52 thousand, down 99.7% from previous quarter
  • Net Revenue Retention Rate: 116%, in line with previous quarter
  • Customers: 609,000, up from 598,000 in previous quarter
  • Gross Margin (GAAP): 62.8%, up from 56.1% same quarter last year

“2021 was a transformational year for DigitalOcean,” said Yancey Spruill, 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 is the lifeblood of the internet and software in general, and the amount of data created is growing at an accelerating pace. Likewise, the importance of storing the data in scalable and efficient formats continues to rise, especially as the diversity of the data and associated use cases expand from analyzing simple, structured data to high-scale processing of unstructured data, images, audio and video.

Sales Growth

As you can see below, DigitalOcean's revenue growth has been very strong over the last year, growing from quarterly revenue of $87.5 million, to $119.6 million.

DigitalOcean Total Revenue

And unsurprisingly, this was another great quarter for DigitalOcean with revenue up 36.7% year on year. On top of that, revenue increased $8.23 million quarter on quarter, a solid improvement on the $7.61 million increase in Q3 2021, and even a sign of slight acceleration of growth.

Guidance for the next quarter indicates DigitalOcean is expecting revenue to grow 34.7% year on year to $126.2 million, improving on the 28.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $566 million at the midpoint, growing 32% compared to 34.4% increase in FY2021.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

DigitalOcean Net Revenue Retention Rate

DigitalOcean's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 116% in Q4. That means even if they didn't win any new customers, DigitalOcean would have grown its revenue 16% year on year. Trending up over the last year, this is a good retention rate and a proof that DigitalOcean's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Key Takeaways from DigitalOcean's Q4 Results

With a market capitalization of $5.12 billion DigitalOcean is among smaller companies, but its more than $1.71 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by DigitalOcean’s very strong acceleration in customer growth this quarter. And we were also excited to see the really strong revenue growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. But the market was likely expecting more and the company is down 14.7% on the results and currently trades at $40 per share.

Should you invest in DigitalOcean right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.