What happened
Cloud computing services provider Digital Ocean (DOCN -2.11%) was a big winner in the stock market sweepstakes Thursday. The company's shares rose almost 12% on the day, in sharp contrast to the slumping S&P 500 index. This followed the latest in a series of positive analyst reactions to a broad customer price increase announced by the company.
So what
That hike, under which certain products will cost up to 20% more starting July 1, is the first in Digital Ocean's history. Although that looks high at first glance, it's worth noting that many of the company's offerings are relatively inexpensive (a basic virtual server, for example, is priced at $5 per month).
Image source: Getty Images.
Thursday morning, Oppenheimer analyst Timothy Horan weighed in positively about the move, reiterating his outperform (read: buy) recommendation on the shares and his $80 per-share price target.
Although he believes "some slight churn" will occur with customers unhappy with the increased rates, this shouldn't impact Digital Ocean too negatively.
In fact, Horan said, "In this inflationary environment, we expect companies with the best pricing power to outperform. They are using the money to improve service, but there is still a lot of leverage."
The analyst raised his full-year 2022 and 2023 estimates for the company, although precise figures were unavailable.
Now what
Horan's positive take comes a day after his Morgan Stanley peer Josh Baer issued a similar opinion. Baer is also reiterating his overweight recommendation and his existing price target (in this case, $61 per share). He feels that the price increases will lead to gains in key operational and financial metrics, including average revenue per user (ARPU), revenue, and gross profit margin.
