Cloud computing infrastructure provider DigitalOcean Holdings Inc. delivered a strong earnings and revenue beat and posted a sales forecast for the current quarter that came in above estimates, sending its stock sky-high in extended trading today.

DigitalOcean’s stock had already gained 7% during the regular trading session before shooting up by 22% more after-hours.

The company reported earnings before certain costs such as stock compensation of 44 cents per share, ahead of Wall Street’s call for earnings of 35 cents per share. Revenue rose 16%, to $177.1 million, beating the consensus estimate of $173.4 million. Net income came to $19.1 million, up from just $7.9 million a year earlier.

DigitalOcean is a competitor to Amazon Web Services Inc. and Microsoft Corp. in the public cloud infrastructure market. However, rather than take on those giants directly, it has carved a niche for itself serving small businesses with its “developer cloud” that makes it easy for small teams of developers to create modern applications.

With the DigitalOcean App Platform, developers can deploy application code in production with a few clicks, in line with the company’s stated aim of keeping cloud computing simple. DigitalOcean’s pitch is that it takes care of the cloud infrastructure and deployment side of things, so developers can maintain a focus on their code.

DigitalOcean Chief Executive Yancey Spruill (pictured) said he was encouraged by stabilization seen in the company’s key revenue growth metrics. He added that the company continues to invest in its platform, too. “We added several new products and features for our customers while also generating strong free cash flow,” he said.

One disappointing number from the report was DigitalOcean’s net dollar retention rate of 96%. NDR is a key performance indicator that measures how much money existing customers from a year ago are spending today. The number suggests that the company’s revenue would have declined 4% had it not added any new customers.

However, DigitalOcean has indeed grown its customer base. It said that “builders and scalers,” defined as customers that spend more than $50 per month on its platform, rose by 9% from a year earlier. Its average revenue per customer also increased by 6% from a year earlier, to $92.06.

“Digital Ocean had a good quarter, turning its full year around and swinging to a profit for the 9 months so far,” said Holger Mueller of Constellation Research Inc. “Good revenue growth at 16% certainly helped, but even more important is that the company took almost $17 million of operating costs out of the business. Now all eyes are on the fourth quarter, where investors will be hoping to see DigitalOcean closing the year on a profit.”

During the quarter, DigitalOcean announced a key acquisition, spending $111 million to buy Paperspace Co., which provides cloud infrastructure for artificial intelligence developers. It provides access to AI-optimized graphics processing units from Nvidia Corp., as well as software tools that developers can use to build and deploy neural networks.

For the fourth quarter, DigitalOcean is targeting revenue of $178 million, ahead of Wall Street’s consensus estimate of $175.2 million. It’s also looking at earnings of 36 to 37 cents a share, just below the analyst forecast of 38 cents.

Photo: DigitalOcean