DigitalOcean (DOCN 13.89%) stock surged more than 20% at the open Tuesday morning after the company delivered fourth-quarter results that beat analysts' forecasts. It remained up by 12.6% as of 10:50 a.m. ET.
Heading into the Q4 report, analysts expected the on-demand cloud infrastructure and platform tools provider to earn $0.34 per share on sales of $200.5 million. In fact, DigitalOcean earned $0.49 per share for the quarter, and on sales that approached $205 million.
NYSE: DOCN
Key Data Points
Steady growth
Sales were up by 13% year over year, which maintained the 13% rate of growth the company achieved earlier in the year. Management noted its annual run-rate revenue was also up 13% -- pointing toward continued strong growth in 2025.
The company's $0.49 per share profit figure, however, was only a non-GAAP number. Actual earnings as calculated according to generally accepted accounting principles (GAAP) were only $0.19 per share.
For all of 2024, revenue reached $781 million for a growth rate of 13%. GAAP profits for the year were $0.89 per share. Again, that was much lower than the adjusted (non-GAAP) number, which DigitalOcean put at $1.92 per share.
Is DigitalOcean stock a buy?
Turning to guidance, DigitalOcean forecast first-quarter 2025 sales of about $208 million leading to non-GAAP earnings of about $0.44 per share. Both of those numbers are slightly above what Wall Street has been forecasting. For all of 2025, DigitalOcean expects to generate about $880 million in revenue, and about $1.90 per share in non-GAAP profits -- again, better numbers than the Street expected to hear.
However, management gave no guidance for either GAAP net income or free cash flow. In that regard, it's worth pointing out that the company's 2024 free cash flow (operating cash flow minus both capital spending and capitalized software costs) came to $96.1 million. Surprisingly, that was a 13% decline versus the $110.1 million generated in 2023.
With DigitalOcean stock trading at 46.5 times trailing earnings, and 35.7 times trailing FCF, with FCF falling, it looks expensive to me. I wouldn't buy into this rally.
