What happened
Shares of DigitalOcean (DOCN -0.30%) sank 28.6% in January, according to data from S&P Global Market Intelligence. The cloud infrastructure company's stock suffered big pullbacks in a month that also saw the S&P 500 index slump by 5.3% and the Nasdaq Composite index fall 9%.
Investors had a lot to chew on in January. Macroeconomic risk factors including rising interest rates, high inflation, and rising Treasury bond yields established a tense trading backdrop, and catalysts including flaring geopolitical tensions and concerning guidance from Netflix, Peloton, and Tesla added to the market's concerns. DigitalOcean's January stock slide followed a roughly 20% tumble in December.
Image source: Getty Images.
So what
With a variety of risk factors and headwinds on the horizon, Wall Street is taking a different view on valuations. Barclays analyst Raimo Lenschow published a note about DigitalOcean on Jan. 12, maintaining an overweight rating on the stock, but lowering his one-year price target from $120 per share to $85 per share. The analyst doesn't see the software company having any problems with demand in the near term, but he leans toward the possibility that the software industry will return to valuation levels that are closer to its long-term average.
Now what
DigitalOcean stock has continued to slide in February's trading. It's down roughly 3.9% in the month so far, a move that can likely be traced in part to the marketwide pullback that followed Meta Platforms' disappointing fourth-quarter report.
DigitalOcean will publish its own fourth-quarter results before the market opens on Feb. 24. For the quarter, the company is guiding for revenue in the $117 million to $119 million range and a non-GAAP (adjusted) EBITDA margin in the 30% to 31% range. For the full year, management expects sales between $426 million and $428 million, an adjusted EBITDA margin between 30% and 31%, and capital expenditures as a percentage of revenue between 25% and 26%.
Digital Ocean went public in March 2021, and the company's stock is still roughly 35% higher than where it sat at the close of its debut trading day, despite volatile trading in the interim. The cloud specialist now has a market capitalization of roughly $6.1 billion and trades at approximately 11 times this year's expected sales and 97 times expected earnings.
