What happened

Shares of cloud-computing company DigitalOcean (DOCN -1.76%) were down 17% in November, according to data provided by S&P Global Market Intelligence. The company reported quarterly financial results during the month, which caused a large market reaction. And analysts weighed in throughout the month, also affecting the stock price.

So what

DigitalOcean offers a cloud computing platform and targets small and medium-size businesses. This enterprise segment of the economy is under pressure these days. However, DigitalOcean stock didn't drop because of problems with the business. To the contrary, it put up strong numbers in the third quarter of 2022, which was reported on Nov. 7.

In the third quarter, DigitalOcean generated revenue of $152.1 million, up 37% year over year and ahead of management's high-end guidance of $147 million. There's a small caveat to the top-line figure: $4.1 million in revenue is from its recent acquisition of Cloudways. However, even backing this revenue out, DigitalOcean still beat guidance.

The company ended the second quarter of 2022 with 105,000 customers spending $50 or more every month. During the thrd quarter, it added 17,000 more of these customers. And through its acquisition of Cloudways, it got an additional 20,000, bringing its third-quarter total to 142,000, up 50% year over year and up 35% from the second quarter.

Moreover, DigitalOcean's average revenue per customer increased 28% year over year to $79.22. That was also a sharp jump from average revenue per customer of just $71.76 in the second quarter.

Third-quater numbers were solid, but Wall Street is already looking ahead to the next quarter, and that's where DigitalOcean's underperformance in November comes in.

Now what

DigitalOcean is guiding for full-year 2022 revenue of $573 million to $575 million, about 34% in year-over-year growth. And management is guiding for $1 billion in revenue in 2024. That implies over 30% top-line growth for the next two full years.

But several analysts doubt this will be possible and consequently lowered their price targets for DigitalOcean stock during November. This included Barclays analyst Raimo Lenschow, who lowered his price target from $45 per share to $37, according to The Fly.

DigitalOcean generates revenue based on customer use of its platform. So in a slowing economy, customer use could theoretically drop and validate concerns among the analyst community.

That said, I struggle to fault DigitalOcean on much in its third quarter report or in its full-year guidance. Yes, things could materially slow, but that has yet to happen. In fact, average spending per customer is at an all-time high.

Moreover, DigitalOcean is growing profitably, on pace for a free-cash-flow margin of 10% to 11% this year, up from just 6% in 2021. I don't normally say this, but given the market's overly negative reaction in November contrasted with DigitalOcean's ongoing strength, this looks like a timely buying opportunity to me.