DigitalOcean (DOCN -4.93%), a cloud service provider focusing on startups and small digital enterprises, reported fourth quarter 2024 earnings on Tuesday, Feb. 25, that topped analysts' consensus estimates. Adjusted EPS of $0.49 came in well ahead of the anticipated $0.34 while Q4 revenue reached $204.9 million, exceeding expectations of $200.6 million.
Overall, the quarter was robust, showcasing solid growth and product innovation despite competitive challenges.
| Metric | Q4 2024 | Analysts' Estimate | Q4 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.49 | $0.34 | $0.44 | 11.4% |
| Revenue | $204.9 million | $200.6 million | $180.9 million | 13.3% |
| Net income | $18 million | N/A | $15.9 million | 15% |
| Adj. free cash flow | $37 million | N/A | $29 million | 27.6% |
Source: DigitalOcean. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Company Overview and Recent Business Focus
Founded to serve the tech-savvy startup market, DigitalOcean provides cloud computing solutions tailored for small digital businesses. It thrives in the expanding cloud market by focusing on scalable solutions for startups and small businesses. Recently, the company has been concentrating on expanding its presence in artificial intelligence/machine learning (AI/ML) sectors and maintaining a high level of customer retention.
A core focus area has been expanding its customer segments labeled "Builders" and "Scalers." These are customers with higher spending patterns and significant revenue potential. By increasing its strategic engagement with these groups, DigitalOcean is seeing substantial revenue growth.
Quarter Highlights
DigitalOcean continues to stand out in terms of financial and product performance. Q4 revenue of $204.9 million was up 13.3% year over year, attributed to a strategic push in AI/ML products and features. The impressive growth came despite competitive pressures within the tech market. The company's operating efficiency was underscored by an improved adjusted EBITDA margin, which reached 42% compared to management's forecasted range of 34%-38%.
Net income rose to $18 million from $15.9 million in Q4 2023, aided by strategic initiatives focused on high-value customer retention. A robust 37 new product releases were launched during the quarter, quadrupling the number from last year. These innovations include the AI-optimized GenAI Platform and Cloudways Copilot targeted at small and medium businesses.
Materials such as the acquisition of Paperspace have fortified DigitalOcean’s presence in the AI/ML domain. This sector experienced a phenomenal near-200% growth in annual run-rate revenue. Key financial strategies, including share buybacks, have complemented an enhanced net income margin of 11% for the full year, indicating strong shareholder returns and confidence in ongoing fiscal strategies. One-time influences such as an earlier surge in the Asian market and last year's pricing adjustments in managed hosting temporarily tempered growth.
Looking Ahead
DigitalOcean’s management has a cautiously optimistic outlook for the upcoming quarters. As the company transitions into 2025, a focus on product innovations within the AI/ML sphere remains central to its growth strategy. For Q1 2025, management expects revenue of $207 million to $209 million, adjusted EBITDA margin of 38% to 40%, and adjusted net income per share of $0.41 to $0.46. For the full year 2025, it expects revenue of $870 million to $890 million, adjusted EBITDA margin of 37% to 40%, and adjusted free cash flow margin in the range of 16% to 18% of revenue. Forward guidance implies a steady adjusted EBITDA margin, building upon firm foundations laid in 2024.
Management is keeping a vigilant eye on competitive positioning, yet remains dedicated to driving organic growth through innovations and partnerships, particularly by leveraging AI/ML sectors. Investors are advised to watch field developments closely, as these could mark significant growth trajectories for DigitalOcean moving forward.
