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Why DigitalOcean Stock Surged Today

By Joe Tenebruso – Nov 4, 2021 at 5:04PM

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Investors applauded the cloud computing upstart's rapid pace of expansion.

What happened

Shares of DigitalOcean (DOCN 3.23%) jumped 10.9% on Thursday after the cloud platform delivered another quarter of impressive growth.  

So what

DigitalOcean's third-quarter revenue rose 37% year over year to $111.4 million. Its annual run-rate revenue, meanwhile, climbed 36% to $455 million.

The cloud infrastructure provider's services -- which are often priced below that of its larger competitors and arguably easier to access -- are proving popular among developers and small businesses. DigitalOcean's total customer base increased by 7% to roughly 598,000 at the end of the quarter.

A rising bar chart.

Image source: Getty Images.

Better still, DigitalOcean is successfully retaining its existing clients and enticing them to use more of its services over time. Its net dollar retention rate jumped 12 percentage points to 116%, while its average revenue per customer leapt 28% to $61.97.

Moreover, while DigitalOcean is not yet profitable on a generally accepted accounting principles (GAAP) basis, it is producing positive cash flow. Its operating cash flow soared 73% to $40.2 million, while its free cash flow checked in at $13.5 million, compared to negative $2.8 million in the year-ago quarter. 

Now what

Management sees much more growth ahead. DigitalOcean guided for revenue of $117 million to $119 million in the fourth quarter, which would be a year-over-year increase of roughly 35%. 

"We are excited about the continued acceleration across our business," CEO Yancey Spruill said in a press release. "We are building the foundation for durable 30%+ revenue growth with strong free cash flow generation, driven by investments in product innovation to support our customers' needs and sales and marketing initiatives to further penetrate our massive market opportunity."

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Digitalocean Holdings, Inc. The Motley Fool has a disclosure policy.

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