Why DigitalOcean (DOCN) Stock Is Up Today
What Happened:
Shares of cloud computing provider DigitalOcean (NYSE: DOCN) jumped 14.6% in the pre-market session after the company reported fourth quarter results and delivered very solid free cash flow. Its revenue narrowly outperformed Wall Street's estimates while EPS beat by a more convincing margin. On the other hand, gross margin decreased. Looking ahead, revenue guidance for the next quarter and full year came in roughly in line with expectations. Having experienced macro challenges in 2023, management provided a more encouraging outlook on the business environment adding, "While top line pressure lasted longer into 2023 than we had originally expected, we saw a bottoming of the headwinds in Q3, and with stable net dollar retention and steady growth in Cloudways in the second half, we exceeded the revised full year revenue outlook."
Zooming out, this was still a decent, albeit mixed, quarter, showing that the company is staying on track.
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What is the market telling us:
DigitalOcean's shares are very volatile and over the last year have had 24 moves greater than 5%. But moves this big are very rare even for DigitalOcean and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock gained 13.1% on the news that the company reported an impressive "beat and raise" quarter. Third quarter results came in ahead of analysts' revenue and EPS expectations. Revenue guidance for the next quarter also beat Consensus estimates. Similarly, the full year revenue guidance beat and was raised. However, net revenue retention declined, but the company maintained positive free cash flow and anticipates a strong free cash flow of 21% to 22% of revenue for the fiscal year 2023, despite ongoing investments in Paperspace integration. It's important to note that the company is actively seeking a new CEO with cloud infrastructure expertise, and they are making progress in this regard, although no specific timeline has been given. In summary, DigitalOcean delivered a robust quarter.
DigitalOcean is up 5.3% since the beginning of the year, but at $38.23 per share it is still trading 23.4% below its 52-week high of $49.90 from July 2023. Investors who bought $1,000 worth of DigitalOcean's shares at the IPO in March 2021 would now be looking at an investment worth $898.06.
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