Shares of the cloud computing infrastructure firm DigitalOcean Holdings Inc. traded higher in extended trading today after it delivered earnings, revenue and guidance for the current quarter that came in above expectations.

The company reported earnings before certain costs such as stock compensation of 44 cents per share, nicely ahead of Wall Street’s target of 37 cents per share. Revenue growth was a little sluggish at just 11% more than a year earlier, but the company’s $181 million in reported sales still came in ahead of the analysts’ consensus estimate of $178.1 million.

Investors were likely also pleased to see the company boosting its profitability. It reported net income for the quarter of $15.9 million, rising from a loss of $10.3 million one year earlier.

The company also announced its full-year fiscal 2023 results, with revenue growing by 20% from the previous year, to $693 million.

The results clearly pleased investors, as DigitalOcean’s stock rose more than 6% in extended trading, reversing a 3% decline that occurred in the regular trading session.

DigitalOcean stands out as a competitor to Amazon Web Services Inc. and Microsoft Corp. in the public cloud infrastructure market. Instead of competing against those giants head on, 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.

The company was formerly led by Yancey Spruill, but last month it announced that Paddy Srinivasan (pictured) was taking over as its new chief executive, concluding a leadership transition plan that was outlined last summer.

Taking part in his first earnings call as the company’s new CEO, Srinivasan said he’s eager to help the company invest in “transformational new AI solutions.” Indeed, the company has ambitious plans to play a role in the growing artificial intelligence industry. While most of the headlines around AI are focused on bigger players like Google LLC and Meta Platforms Inc., there are plenty of smaller companies hoping to tap into the power of generative AI, and it’s these that DigitalOcean is hoping to cater to with its recently acquired Paperspace platform.

Last month, the company announced that it’s making Nvidia Corp.’s most powerful H100 graphics processing units available to small and medium-sized businesses via Paperspace, enabling them to access the critical hardware needed to power AI workloads. It said at the time that it sees big demand for the offering, because the large cloud providers such as AWS and Microsoft Azure have largely optimized their GPU offerings to serve bigger enterprises.

The company’s efforts in AI appear to have been well-received so far, for DigitalOcean reported 11% growth in its annual revenue run rate, which ended the quarter at $730 million. It also saw its average revenue per customer increase to $92.63, up 6% from a year earlier, while “Builders and Scalers,” which refers to customers that spend at least $50 per month on its offerings, increased 8% from a year earlier.

Holger Mueller of Constellation Research Inc. said DigitalOcean did well to swing back to profitability, showing good growth over the full year. However, he said investors may be concerned to see that the company’s growth slowed in the final quarter. “One of the most urgent jobs for the new CEO Paddy Srinivasan will be to find a way to rekindle its growth, and it will be interesting to see how he does that,” the analyst said. “From his comments, it seems AI will likely be a key strategy, and we’ll hopefully learn more about its plans and prospects in the coming quarters.”

Looking to the coming quarter, DigitalOcean said it sees earnings of between 37 and 39 cents per share, ahead of the Street’s forecast of 37 cents. It also expects revenue of between $182 million and $183 million, ahead of Wall Street’s target of $181.4 million.

For fiscal 2024, the company is targeting earnings of between $1.60 and $1.67 per share, versus the consensus estimate of $1.62. For revenue, it’s looking at a range of $755 million to $775 million, versus the analysts’ $765.9 million target.

Photo: DigitalOcean