DigitalOcean Holdings, Inc. (NYSE: DOCN) is a cloud computing platform, which caters to the needs of startups, small and medium-sized businesses, and developers (SMBs). The infrastructure and the tools provided by the company are used for web projects, mobile and web applications, gaming, mobile applications, and other purposes.
The New York-based company was incorporated in 2012 and went public in 2021. It completed initial public offerings (IPO) of 16.5 million shares for $47 each share in March last year. The first trading day on the NYSE was March 24, 2021.
The gross and net proceeds from the IPO were $775.5 million and $723 million, respectively. A part of the proceeds was used for the repayment of debts.
Since venturing into the capital market, the company has garnered a lot of attention from analysts and market experts. On TipRanks, the stock has a Strong Buy consensus rating based on 10 Buys and two Holds. DOCN’s average price target of $58.36 reflects 22.22% upside potential from the current levels.
A discussion on DigitalOcean’s journey since the IPO and its prospects could help investors understand more about it.
Share Price & Market Capitalization
On March 24, 2021, the opening price for DigitalOcean stock was $41.50 (11.7% below IPO price) and the closing price was $42.50 (9.6% decline). The day’s highest and lowest level was $45.16 and $39.01, respectively.
So far, the stock has grown 15.1% to close at $47.75 on Friday (June 24, 2022). The last closing price represents a 1.6% rise from the IPO price.
Presently, the company’s market capitalization is approximately $4.9 billion.
Since its listing, DigitalOcean has reported results for the four quarters of 2021 and the first quarter of 2022. Its earnings came in better-than-expected in three of the five quarters, however lagged estimates in two.
In addition to its first-quarter 2022 results, the company announced that it received approval from its board of directors for a $300 million share buyback program in May 2022. It also launched DigitalOcean Functions, a serverless solution, in the same month.
In November 2021, the company raised funds through the issuance of $1.3 billion worth of 0% convertible senior notes with maturity in 2026.
In September 2021, the company forayed deeper into the function-as-a-service (FaaS) market with the acquisition of Nimbella, a provider of serverless platform. This buyout also strengthens the company’s portfolio in Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) markets.
In June 2021, DigitalOcean and MongoDB, Inc. (NASDAQ: MDB) unveiled DigitalOcean Managed MongoDB, an offering in the database as a service (DBaaS) space.
Growth Drivers & Projections
A solid product portfolio, innovation and technological capabilities, and strong demand for cloud computing platforms have strengthened the prospects for DigitalOcean. Also, the company’s efforts to expand footprints through acquisitions and partnerships add to its appeal. Its user count was 623 thousand at the end of the first quarter of 2022.
The company anticipates its addressable PaaS market to be $54 billion in 2025 versus $25 billion in 2022. The size of the IaaS market is likely to increase to $91 billion in 2025 from $47 billion in 2022. Further, it projects 500 million new applications to be introduced by 2023 and as many as 16 million new developers to start a business by 2025.
For 2024, DigitalOcean projects revenues to be $1 billion, higher than $429 million in 2021, and non-GAAP operating margin to be >25%. Also, the company expects revenues to be $564-$568 million, non-GAAP operating margin to be 13%-15%, and non-GAAP earnings to be $0.70-$0.71 per share in 2022.
In May 2022, the CEO of DigitalOcean, Yancey Spruill, said, “We are focused on broadening our product offerings, investing in our go-to-market capabilities, both to enable our customers’ success and drive consistent revenue growth combined with ramping free cash flow.”
Opinions and Data
A few days ago, David Hynes of Canaccord Genuity maintained a Buy rating on DOCN with a price target of $55 (15.18% upside potential).
The company’s website traffic growth is also reflective of its solid prospects. Per TipRank’s data, the footfall on the company’s website increased 17.22% year-over-year in May 2022, 17.80% quarter-to-date, and 19.06% year-to-date.
With a large addressable market, solid user base, and product offerings, DigitalOcean seems to be an attractive investment option for investors seeking exposure in the cloud computing market.
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