UPDATED 20:30 EDT / AUGUST 05 2021

CLOUD

DigitalOcean posts solid earnings beat as demand for developer cloud accelerates

Cloud infrastructure company DigitalOcean Holdings Inc. posted its first quarterly financial results today, beating Wall Street’s expectations.

The company reported second quarter earnings before certain costs such as stock compensation of 2 cents per share on revenue of $103.8 million, up 35% from one year ago.

That was better than expected. Analysts had modeled break-even earnings on revenue of $98.29 million for the quarter.

Not surprisingly, DigitalOcean Chief Executive Yancey Spruill (pictured) spoke of an “outstanding quarter” and took note of the company’s “strong revenue growth acceleration.”

“We are excited about the progress we have made in leveraging simplicity across our business to better serve our customers and believe we have a path to a durable 30%+ growth rate for 2021 and next year,” he added.

DigitalOcean is playing what some might consider to be a risky game. It’s taking on much more established and better funded rivals such as Amazon Web Services Inc. and Microsoft Corp. in the public cloud services space. The company 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.

DigitalOcean’s strategy involves keeping things simple then. Most of its income is derived from the sale of what it calls “droplets,” which are virtual slices of physical servers.

So far, the plan seems to be working as DigitalOcean is enjoying a period of sustained growth. The company posted a big increase in its annual run-rate revenue, which ended the quarter at $426 million, up 36% from a year ago.

Its total number of customers at the end of the quarter was 602,000, up 9% from a year ago. Net dollar retention rate, a key metric that represents how much revenue growth or churn a company has over time from its existing customer base, was 113%, up 1,100 basis points from a year before.

The company’s average revenue per customer came to $58.07, up 25% from a year ago.

“The cloud is doing well and when that happens the big ships and smaller ships like DigitalOcean ride the waves,” said Constellation Research Inc.’s Holger Mueller. “Revenue is up 30% and with good cost management, the future looks bright for DigitalOcean. The company has shown it’s good at managing costs and it is slowly but steadily reaching better economies of scale.”

During the quarter DigitalOcean announced a key offering called Managed MongoDB, which is a fully-managed database service that helps developers spin up MongoDB database clusters on its cloud with no hassle.

For the next quarter, DigitalOcean said it’s expecting revenue of $106 million to $109 million, above Wall Street’s forecast of $104.1 million.

Photo: DigitalOcean

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