DigitalOcean Holdings, Inc (NYSE:DOCN) operates a cloud computing platform that services customers worldwide.
The company went public in March of 2021, and the stock has risen in price well over 50% since the initial public offering (IPO). Despite the overall success, the stock is down more than 40% from its recent 52-week high. Growth stocks have fallen out of favor based on macroeconomic fears of interest rate hikes, faster tapering, and general concern over valuations. DigitalOcean has been unfairly caught in this net, which offers investors a compelling entry point.
DOCN data by YCharts
The cloud-services market is dominated by major players from Big Tech. Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG) hold sway over 61% of the market. Going head-to-head with these highly successful giants would be foolish, which is why DigitalOcean's business model focuses on the needs of small and medium-sized businesses (SMBs). While large corporations need the complex, expensive solutions that Big Tech can provide, SMBs are more focused on cost, ease of use, and customer service. DigitalOcean prides itself on its straightforward billing structure, simplicity, and world-class customer service.
SMBs are also a very fertile market that has been overlooked by larger companies in the industry. DigitalOcean estimates that there are 100 million companies with less than 500 employees worldwide, with 14 million new SMBs formed each year. It estimates that the total addressable market will grow to $116 billion by 2024. This is a gigantic opportunity to become the go-to solution for these smaller companies.
Image source: Getty Images.
DigitalOcean is growing revenue steadily, and the growth is accelerating. As shown below, top-line revenue is expected to grow 34% to $427 million in fiscal 2021. The growth rate is well above the prior year's 25% growth rate, which is a terrific sign for things to come. In addition, while the company is not yet profitable in terms of generally accepted accounting principles (GAAP), it is both cash-from-operations (CFO) and earnings before interest, taxes, depreciation, and amortization (EBITDA) positive. For fiscal 2021, the company expects to make close to $130 million in adjusted EBITDA.
Image source: DigitalOcean.
The revenue growth comes from two sources: new customers and existing customers spending more each period with the company. DigitalOcean reports a net retention rate of 116% for the third quarter of 2021. A rate over 100% means that existing customers are spending more each period in excess of any customers who leave the platform. In fact, monthly revenue per unit has grown from $48.6 in Q3 2020 to nearly $62 in Q3 2021, an annual gain of 28%.
In addition to growth, DigitalOcean has attractive margins which indicates scaling to profitability is likely. First, the adjusted gross margin reached 80% in Q3 2021. The adjusted EBITDA margin for full fiscal 2021 is expected to be over 30%. This allows the company to be cash flow positive in its growth phase. Positive cash flow is great for investors. It suggests that the company will not need to raise cash through either debt or equity financing to pay for general operations. The company also has a significant cash balance from which to make acquisitions. DigitalOcean posted over $589 million in cash and equivalents on hand with no long-term debt at last report.
DOCN Cash and Equivalents (Quarterly) data by YCharts
The high-quality margins and fortress balance sheet indicate that DigitalOcean has a distinct path to healthy profits in the coming years.
DigitalOcean has found a terrific way to coexist in a sector with some of the largest companies on the planet; it simply doesn't compete with them. Instead, it focuses on those customers that don't interest the big tech companies much: independent developers and SMBs. And millions of these will be transitioning to cloud-based operations in the coming periods. Those who may have thought they missed the boat on DigitalOcean have seen the stock come back to port. Revenue is growing at an impressive and accelerating clip. The company is investing in growth and has a stated, and attainable, goal of reaching $1 billion in revenue by fiscal 2024.
DigitalOcean is also not a "growth at all costs" type of stock. The company has quality margins and is cash flow positive, which indicates an inherent route to GAAP profitability in the coming years. All of this, combined with an extremely solid balance sheet, make DigitalOcean stock a strong candidate to consider for long-term growth investors.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View original post here:
Cloud Computing for the Little Guy Is a Big Deal - Motley Fool
- ISSCC 2024: Inside AMD's Zen 4cThe Area-Optimized Cloud Computing Core - News - All About Circuits - February 26th, 2024 [February 26th, 2024]
- Huawei Cloud: Infrastructure of Choice for AI with 10 Systematic Innovations Unveiled in MWC Barcelona 2024 - Morningstar - February 26th, 2024 [February 26th, 2024]
- Cybersecurity fears drive a return to on-premise infrastructure from cloud computing - Help Net Security - February 26th, 2024 [February 26th, 2024]
- Cybersecurity fears drive a return to on-premise infrastructure from cloud computing - HealthLeaders Media - February 26th, 2024 [February 26th, 2024]
- Huawei Cloud: Infrastructure of Choice for AI with 10 Systematic Innovations Unveiled in MWC Barcelona 2024 - PR Newswire - February 26th, 2024 [February 26th, 2024]
- South Korea Boosts Cloud Computing with $91.5 Million Investment to Propel AI and SaaS Innovation - BNN Breaking - February 26th, 2024 [February 26th, 2024]
- Science ministry to invest 121.9 bln won in cloud computing industry - Yonhap News Agency - February 26th, 2024 [February 26th, 2024]
- Why Microsoft is spending billions on AI and cloud computing in Europe - ITPro - February 26th, 2024 [February 26th, 2024]
- Universities Migrate Research Computing to the Cloud - EdTech Magazine: Focus on K-12 - February 26th, 2024 [February 26th, 2024]
- Top Cloud Computing Skills You Need to Know in 2024 - Simplilearn - February 26th, 2024 [February 26th, 2024]
- Best Cloud Tools of 2024: Unleash Maximum Productivity - Simplilearn - February 26th, 2024 [February 26th, 2024]
- Real-time Analytics News for the Week Ending February 24 - RTInsights - February 26th, 2024 [February 26th, 2024]
- Synadia Raises $25 Million Series B Funding to Meet Massive Demand for Multi-cloud and Edge Computing Driven by AI - PR Newswire - February 26th, 2024 [February 26th, 2024]
- CEO Outlook 2024: 20 Solution Providers On The Cloud Moment - CRN - February 26th, 2024 [February 26th, 2024]
- DigitalOcean beats expectations under the helm of new CEO Paddy Srinivasan - SiliconANGLE News - February 26th, 2024 [February 26th, 2024]
- Securing Kubernetes in a Cloud Native World - The New Stack - February 26th, 2024 [February 26th, 2024]
- How to Build a Chat Interface using Gradio & Vultr Cloud GPU SitePoint - SitePoint - February 26th, 2024 [February 26th, 2024]
- Microsoft to invest $2.1bn in cloud and AI infrastructure in Spain - DatacenterDynamics - February 26th, 2024 [February 26th, 2024]
- Stannah looks to enterprise cloud software to lift IT systems - ComputerWeekly.com - February 26th, 2024 [February 26th, 2024]
- AI vendor finds opportunity amid AI computing problem - TechTarget - February 26th, 2024 [February 26th, 2024]
- Nvidia Worth More Than Alphabet, Amazon - 24/7 Wall St. - February 26th, 2024 [February 26th, 2024]
- VIB spearheads banking innovation with deployment of Temenos Banking Platform on AWS cloud - VnExpress International - February 26th, 2024 [February 26th, 2024]
- Why These 7 Cloud Computing Stocks Should be on Your Radar in 2024 - InvestorPlace - December 25th, 2023 [December 25th, 2023]
- IBM to Buy Software AG's Cloud Computing and AI Assets for $2.3BN - Investopedia - December 25th, 2023 [December 25th, 2023]
- Pass the AWS Certified Cloud Practitioner Certification in One Week - Medium - December 25th, 2023 [December 25th, 2023]
- 3 Cloud Computing Stocks You'll Regret Not Buying Soon: December Edition - InvestorPlace - December 25th, 2023 [December 25th, 2023]
- Cloud Computing Market Predicted to Hit US$1,266.4 Billion by 2028 - TechiExpert.com - December 25th, 2023 [December 25th, 2023]
- AWS chief Adam Selipsky talks generative AI, Amazon's investment in Anthropic and cloud cost-cutting - Omaha World-Herald - December 25th, 2023 [December 25th, 2023]
- Mangata Networks and Microsoft Partner on AI-enabled Edge Cloud Connectivity - AiThority - December 25th, 2023 [December 25th, 2023]
- Democratization of Cloud vs AI: A Case Study - Medium - December 25th, 2023 [December 25th, 2023]
- 5 Drivers Behind the Growth of the GPU Cloud Computing Market - Visual Capitalist - December 25th, 2023 [December 25th, 2023]
- Report: AWS to reorganize sales teams amid slowing cloud revenue growth - SiliconANGLE News - December 25th, 2023 [December 25th, 2023]
- Don't underestimate vulnerabilities in the cloud. Adopt hybrid to stay protected - Best Enterprise Data Storage Software ... - Solutions Review - December 25th, 2023 [December 25th, 2023]
- Innovations, disruptions, transformations expected in 2024 Intelligent CIO Middle East - Intelligent CIO - December 25th, 2023 [December 25th, 2023]
- IBM makes $2B+ deal to add more AI, cloud computing solutions - WRAL TechWire - December 25th, 2023 [December 25th, 2023]
- How to Select the Right Industry Cloud for Your Business - How to Select the Right Industry Cloud for Your Business - InformationWeek - December 25th, 2023 [December 25th, 2023]
- Cloud Computing Market Set to Reach US$1,266.4 Billion by 2028 - Analytics Insight - December 25th, 2023 [December 25th, 2023]
- Cisco to Acquire Isovalent to Secure Cloud-Native Networking - Channel E2E - December 25th, 2023 [December 25th, 2023]
- Cloud-native applications: Unlocking the potential of scalability and agility - ETCIO - December 25th, 2023 [December 25th, 2023]
- Year-in-Review: 2023 Was a Turning Point for Microservices - The New Stack - December 25th, 2023 [December 25th, 2023]
- If AI is the future, radiology needs to look to the cloud - Health Imaging - December 25th, 2023 [December 25th, 2023]
- AI and Cloud: The Proving Ground for Regulatory Resilience in 2024 - Finextra - December 25th, 2023 [December 25th, 2023]
- Cognata Redefines Sensor Suite Selection Processes Through Digital Twin-based Sensor Simulation and Cloud ... - PR Newswire - December 25th, 2023 [December 25th, 2023]
- Microsoft and Amazon the focus of cloud computing probe - Proactive Investors USA - October 5th, 2023 [October 5th, 2023]
- Cloud cover benefits of being on the cloud - The Actuary - October 5th, 2023 [October 5th, 2023]
- AI, Cloud Computing among 36 FREE Online Courses Now ... - Philippine Information Agency - October 5th, 2023 [October 5th, 2023]
- Amazon Web Services isn't trying to win the A.I. race. It wants to own the road. - Slate - July 31st, 2023 [July 31st, 2023]
- The Machines Behind the FinOps Curtain: Operationalizing Your Strategy with AI - ITPro Today - July 31st, 2023 [July 31st, 2023]
- Strengthening security in a multi-SaaS cloud environment - TechCrunch - July 31st, 2023 [July 31st, 2023]
- Oracle Introduces First Cloud Native Secure Cloud Computing ... - PR Newswire - July 31st, 2023 [July 31st, 2023]
- The Power of Cloud Computing: How it's Transforming Database ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- From Headquarters to the Edge: The Future of Cloud in the Defense ... - MeriTalk - July 31st, 2023 [July 31st, 2023]
- 6 Cloud Computing Companies Navigating the Digital Storm in 2023 - GovCon Wire - July 31st, 2023 [July 31st, 2023]
- Government Cloud Computing Market Size, Status and Business ... - University City Review - July 31st, 2023 [July 31st, 2023]
- Cloud Computing in Education Market Forecast, 2023-2029: The ... - University City Review - July 31st, 2023 [July 31st, 2023]
- Global Cloud Computing IaaS In Life Science Market Size and ... - University City Review - July 31st, 2023 [July 31st, 2023]
- What is the Relationship Between IoT and Cloud Computing? - Analytics Insight - July 31st, 2023 [July 31st, 2023]
- How Data Center Interconnect Platforms are Shaping the Future of ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- Revolutionizing IoT: How 5G and Cloud Computing are ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- The Future of Cloud Computing: Database as a Service (DBaaS) in ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- Overcoming Data Privacy Challenges in the European Cloud ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- The Future of Telemedicine in India: How Cloud Computing is ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- Multi-Cloud and Hybrid Cloud: What is the Difference? - Analytics Insight - July 31st, 2023 [July 31st, 2023]
- A New Era of Data Management: The Growing Importance of Global ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- From niche to necessity: GFT's vision for cloud computing ... - Business Leader - July 31st, 2023 [July 31st, 2023]
- ERP, Cloud Computing And Digital Transformation - CIOReview - July 31st, 2023 [July 31st, 2023]
- UMD Smith Offers New January Start Date for MS in Information ... - Newswise - July 31st, 2023 [July 31st, 2023]
- The Impact of Global White-box Server Adoption on Cloud ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- Global Application Transformation: Unlocking the Potential of Cloud ... - Fagen wasanni - July 31st, 2023 [July 31st, 2023]
- BFSI Sector and Asia-Pacific Spearhead the Rapid Growth of Cloud ... - GlobeNewswire - July 31st, 2023 [July 31st, 2023]
- Amazon is investing another $7.8B in Ohio-based cloud computing operations, state leaders say - The Associated Press - June 28th, 2023 [June 28th, 2023]
- Google Cloud Platform: Everything you need to know about Google's suite of cloud computing services - Android Police - June 28th, 2023 [June 28th, 2023]
- Amazon is investing another $7.8B in Ohio-based cloud computing ... - Wilmington News Journal, OH - June 28th, 2023 [June 28th, 2023]
- 11 Key Executives in the Cloud Computing Industry in 2023 - Executive Gov - June 28th, 2023 [June 28th, 2023]
- 10 Multi-Cloud Myths Debunked: Exposing the Facts - TechFunnel - June 28th, 2023 [June 28th, 2023]
- How MTN and Microsoft will transform business operations with ... - TheCable - June 28th, 2023 [June 28th, 2023]
- The Power of Cloud Computing: Revolutionizing Business and IT ... - Tech Critter - June 28th, 2023 [June 28th, 2023]
- FTC Collecting Comments On Cloud Computing, CCIA Offers Input ... - Computer and Communications Industry Association - June 28th, 2023 [June 28th, 2023]
- How AI and Cloud Computing Are Revolutionizing the Insurance ... - Techopedia - June 28th, 2023 [June 28th, 2023]
- HPE Discover final analysis: Navigating the cloud computing ... - SiliconANGLE News - June 28th, 2023 [June 28th, 2023]