What happened
Shares of DigitalOcean Holdings (DOCN -0.54%) were down 18.3% as of 11:08 a.m. ET on Thursday after the company delivered earnings results for the first quarter. DigitalOcean continues to gain traction helping start-ups scale and develop applications for the cloud. Revenue grew 36% year over year to reach $127.3 million, which was slightly ahead of analyst estimates of $126.3 million.
It seems a miss on the bottom line contributed to the market's negative reaction. Adjusted (non-GAAP) earnings per share came in at $0.07, while analysts were expecting $0.12.
So what
There was a lot to like in the earnings report, especially compared to the company's growth in 2021. Revenue in the first quarter of 2022 grew faster than the 29% growth rate reported in Q1 2021 and in line with the fourth quarter's growth of 37%.
Moreover, adjusted operating margin of 11% shows good stability with the year-ago quarter. Given that the first quarter is typically the weakest period for margin performance, management expects margins to improve throughout the year as revenue continues to grow.
Increasing spending per customer bodes well for the company's ability to continue improving profitability. The net dollar retention rate improved from 107% a year ago to 117% in the recent quarter. That contributed to a 28% year-over-year increase in average revenue per customer.
Image source: Getty Images.
Now what
It was a solid start to the year considering the economic headwinds and lower expectations for growth. The recent acquisition of CSS Tricks, an educational site for software developers, helped grow website traffic by 70% year over year and points to more growth ahead for DigitalOcean in the cloud services market.
Indeed, management's full-year revenue guidance calls for revenue to land in the range of $564 million to $568 million, representing year-over-year growth of 32% at the midpoint. Management believes it can offset the $8 million to $10 million loss of revenue in Ukraine and Russia with other growth initiatives underway, including targeting specific customers in areas that can drive higher spending with DigitalOcean.
