Developer-focused cloud infrastructure company DigitalOcean Inc. launched its initial public offering today, but if it was expecting a stock pop it will have been sorely disappointed, as its shares lost almost 10% of their value on its first day of trading.

The company made its debut on the New York Stock Exchange under the ticker symbol “DOCN.” It had set an IPO price of $47 on Wednesday morning, at the high end of its quoted $44 to $47 range, and raised more than $775 million. But the stock opened at just $41.50, about 10% below its IPO price, and ended the day at $42.50, valuing it at $4.48 billion.

DigitalOcean sells what it likes to call a “developer cloud” that makes it easier for developers to build modern applications. The DigitalOcean App Platform helps developers to deploy their app code in production with just a few simple clicks, in line with the company’s stated aim of simplifying cloud computing. The idea is that by taking care of deployment, developers can focus more of their time on writing code.

The company is taking on much bigger firms such as Amazon Web Services Inc., Microsoft Corp. and Google LLC in the cloud infrastructure market, and it focuses on keeping its services simple to gain an edge over those rivals. Most of its income is derived from the sale of what it calls “droplets,” which are virtual slices of physical servers. Its backers include high-profile venture capital firms such as Andreessen Horowitz and IA Ventures.

DigitalOcean operates 14 data centers in the U.S. and elsewhere through leases, and it has plans to expand that footprint. However, unlike its cloud rivals, DigitalOcean is disadvantaged in that it doesn’t have billions of dollars in deferred revenue, or money that customers have agreed to pay for its services in the future. At the end of 2020, it said, it had less than $5 million in deferred revenue.

In the future, the company is looking at adding analytics software that would enable customers to better use the data stored in its data centers, DigitalOcean Chief Executive Yancey Spruill (pictured) told CNBC in an interview.

The IPO stock drop comes as a mild surprise, since it’s something of a rarity for newly public tech stocks these days. The public market has been very enthusiastic about new tech firms, especially cloud companies, and many of those stocks have surged on their first day of trading. But with most tech stocks suffering a pullback today, it’s hard to tell if DigitalOcean’s disappointing debut reflects the market dynamics or signals underlying issues with the company, analyst Charles King of Pund-IT Inc. told SiliconANGLE.

“From a practical standpoint, it’ll be interesting to see how the company’s shares do as the tech sector recovers its equilibrium,” King added. “That said, while ambition is generally laudable, DigitalOcean is winging its way into a cloud marketplace populated by far larger, better-funded and more experienced players. In such circumstances it is wise to fly carefully rather than risk having your wings clipped early in the game.”

Nevertheless, the company probably timed its IPO well, tapping into the capital markets at what is still a very favorable time for cloud startups, said analyst Holger Mueller of Constellation Research Inc.

“DigitalOcean has championed a unique approach for workloads with its droplets, and it has managed to grow large enough to stay relevant,” Mueller said. “Now it all comes back to the wise spending of the IPO largesse for expansion of capabilities and geographies. In any case, it’s good to see smaller competitors in the space.”

Before its IPO, the company had reported in its S-1 filing revenue of $318.4 million in 2020, up about 25% from the year before. At the same time, its losses held steady, rising slightly from $40.4 million in 2019 to $43.6 million last year. In its prospectus, the company said it plans to achieve profitability by deriving more revenue from each customer while reducing its research and development and general and administrative costs as a percentage of its revenue.

Photo: DigitalOcean