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DigitalOcean Up 7.7% in a Month: Is DOCN Stock Worth Buying?
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DigitalOcean’s (DOCN - Free Report) shares have gained 7.7% in the past month, outperforming the broader Zacks Computer & Technology sector’s decline of 2.7%.
The outperformance can be attributed to the strong adoption of DOCN’s AI and machine learning (ML) products. It reported terrific second-quarter 2024 results, with earnings and revenues surpassing the Zacks Consensus Estimate by 23.08% and 2.04%, respectively. Earnings of 48 cents per share increased 9.1% on 13% year-over-year top-line growth that reached $192 million.
Although challenging macroeconomic conditions negatively impacted the net dollar retention rate (flat at 97% in the second quarter), DOCN’s Annual Run-Rate Revenues increased 15% year over year to $781 million, reflecting strong top-line growth prospects.
The solid quarterly performance has also helped DOCN shares outperform the Zacks Internet Software industry’s return of 6.4% in the past month. DigitalOcean shares have outperformed industry peers, including Datadog (DDOG - Free Report) and Dayforce (DAY - Free Report) . DDOG and DAY shares have lost 3.9% and 0.2%, respectively, in the same timeframe.
One-Month Performance
Image Source: Zacks Investment Research
DOCN shares are trading above the 50-day moving average, indicating a bullish trend.
DOCN Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
2024 Guidance Positive
DigitalOcean expects 2024 revenues between $770 million and $775 million. Earnings are expected to be $1.60-$1.70 per share.
The Zacks Consensus Estimate for 2024 revenues is pegged at $773.63 million, indicating year-over-year growth of 11.65%. The consensus mark for earnings is pegged at $1.65 per share, up by a penny over the past 30 days, suggesting 3.77% growth over the 2023 reported figure.
DigitalOcean’s long-term prospects ride on its strategy of frequently updating its product portfolio. In second-quarter 2024 alone, it released 24 new product features, including Managed OpenSearch and fifth Generation Xeon Processors, as well as enhanced data processing and transfer capabilities within its data centers.
Increased product release velocity (doubled from the prior six months) has helped drive average revenue per user, which rose 9% year over year to $99.45 in second-quarter 2024.
AI platform continues to attract clients. At the end of second-quarter 2024, DigitalOcean had 638K customers. The number of builders (users that have a monthly spend between $50 and $500) and scalers (users that have a monthly spend greater than $500) on its platform, which represents 87% of DOCN’s total revenues, increased roughly 3,000 sequentially.
DigitalOcean is set to open a data center in the first quarter of 2025. This will help it consolidate workloads from expensive data centers in New York City, San Francisco and Toronto to the new data center, thereby driving gross margin expansion.
In the Deploy event held in July, DOCN announced several products, including VPC Peering Beta and Premium CPU Optimized 96 vCPU Droplets. It announced the early availability of GPU droplets, which opens up customers’ on-demand access to NVIDIA’s (NVDA - Free Report) H100 instances.
DigitalOcean’s growing efforts to enhance its platform with products like global load balancer (GLB), which is currently in public beta, are noteworthy. GLB strengthens application resiliency and eliminates single points of failure apart from minimizing end-user latency.
Expanding investments in network and infrastructure aimed at improving performance, reducing latency and increasing speed to make the company’s platform more appealing to customers.
Growing use cases is a positive, as some selective DOCN products can now be used to host electronic protective health information. This will expand the company’s footprint among telehealth providers, healthcare software application developers and health tech organizations.
DOCN launched Malware Protection as part of its managed hosting cloud-based offering, which detects malware and protects its customers from cyberattacks. It offers phishing protection, file protection, database protection for WordPress and Joomla, automated malware cleanup, proactive defense, and cron malware cleanup.
DOCN Shares Overvalued
The Value Score of D suggests that DigitalOcean is overvalued at this moment.
The stock is trading at a premium with a forward 12-month P/S of 4.06X compared with the Zacks Internet Software industry’s 2.51X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
DigitalOcean’s prospects benefit from robust demand for its AI/ML platform and the managed hosting platform. Although the valuation is stretched at this moment, the long-term growth prospects are hard to ignore.
Image: Bigstock
DigitalOcean Up 7.7% in a Month: Is DOCN Stock Worth Buying?
DigitalOcean’s (DOCN - Free Report) shares have gained 7.7% in the past month, outperforming the broader Zacks Computer & Technology sector’s decline of 2.7%.
The outperformance can be attributed to the strong adoption of DOCN’s AI and machine learning (ML) products. It reported terrific second-quarter 2024 results, with earnings and revenues surpassing the Zacks Consensus Estimate by 23.08% and 2.04%, respectively. Earnings of 48 cents per share increased 9.1% on 13% year-over-year top-line growth that reached $192 million.
Although challenging macroeconomic conditions negatively impacted the net dollar retention rate (flat at 97% in the second quarter), DOCN’s Annual Run-Rate Revenues increased 15% year over year to $781 million, reflecting strong top-line growth prospects.
The solid quarterly performance has also helped DOCN shares outperform the Zacks Internet Software industry’s return of 6.4% in the past month. DigitalOcean shares have outperformed industry peers, including Datadog (DDOG - Free Report) and Dayforce (DAY - Free Report) . DDOG and DAY shares have lost 3.9% and 0.2%, respectively, in the same timeframe.
One-Month Performance
Image Source: Zacks Investment Research
DOCN shares are trading above the 50-day moving average, indicating a bullish trend.
DOCN Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
2024 Guidance Positive
DigitalOcean expects 2024 revenues between $770 million and $775 million. Earnings are expected to be $1.60-$1.70 per share.
The Zacks Consensus Estimate for 2024 revenues is pegged at $773.63 million, indicating year-over-year growth of 11.65%. The consensus mark for earnings is pegged at $1.65 per share, up by a penny over the past 30 days, suggesting 3.77% growth over the 2023 reported figure.
DigitalOcean Holdings, Inc. Price and Consensus
DigitalOcean Holdings, Inc. price-consensus-chart | DigitalOcean Holdings, Inc. Quote
Innovative Portfolio Aids DOCN Stock’s Prospects
DigitalOcean’s long-term prospects ride on its strategy of frequently updating its product portfolio. In second-quarter 2024 alone, it released 24 new product features, including Managed OpenSearch and fifth Generation Xeon Processors, as well as enhanced data processing and transfer capabilities within its data centers.
Increased product release velocity (doubled from the prior six months) has helped drive average revenue per user, which rose 9% year over year to $99.45 in second-quarter 2024.
AI platform continues to attract clients. At the end of second-quarter 2024, DigitalOcean had 638K customers. The number of builders (users that have a monthly spend between $50 and $500) and scalers (users that have a monthly spend greater than $500) on its platform, which represents 87% of DOCN’s total revenues, increased roughly 3,000 sequentially.
DigitalOcean is set to open a data center in the first quarter of 2025. This will help it consolidate workloads from expensive data centers in New York City, San Francisco and Toronto to the new data center, thereby driving gross margin expansion.
In the Deploy event held in July, DOCN announced several products, including VPC Peering Beta and Premium CPU Optimized 96 vCPU Droplets. It announced the early availability of GPU droplets, which opens up customers’ on-demand access to NVIDIA’s (NVDA - Free Report) H100 instances.
DigitalOcean’s growing efforts to enhance its platform with products like global load balancer (GLB), which is currently in public beta, are noteworthy. GLB strengthens application resiliency and eliminates single points of failure apart from minimizing end-user latency.
Expanding investments in network and infrastructure aimed at improving performance, reducing latency and increasing speed to make the company’s platform more appealing to customers.
Growing use cases is a positive, as some selective DOCN products can now be used to host electronic protective health information. This will expand the company’s footprint among telehealth providers, healthcare software application developers and health tech organizations.
DOCN launched Malware Protection as part of its managed hosting cloud-based offering, which detects malware and protects its customers from cyberattacks. It offers phishing protection, file protection, database protection for WordPress and Joomla, automated malware cleanup, proactive defense, and cron malware cleanup.
DOCN Shares Overvalued
The Value Score of D suggests that DigitalOcean is overvalued at this moment.
The stock is trading at a premium with a forward 12-month P/S of 4.06X compared with the Zacks Internet Software industry’s 2.51X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
DigitalOcean’s prospects benefit from robust demand for its AI/ML platform and the managed hosting platform. Although the valuation is stretched at this moment, the long-term growth prospects are hard to ignore.
DigitalOcean currently has a Zacks Rank #2 (Buy) and a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.