UBS has revised its price target for DigitalOcean (DOCN, Financial), reducing it from $44 to $32 while maintaining a Neutral stance on the stock. This adjustment comes after the company's shares dropped by 14% in response to its first-quarter results. Despite exceeding revenue expectations, the company did not show significant cash generation, prompting investor concerns. UBS suggests that the stock's sharp decline might be excessive given the circumstances.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 12 analysts, the average target price for DigitalOcean Holdings Inc (DOCN, Financial) is $39.25 with a high estimate of $55.00 and a low estimate of $31.00. The average target implies an upside of 37.14% from the current price of $28.62. More detailed estimate data can be found on the DigitalOcean Holdings Inc (DOCN) Forecast page.
Based on the consensus recommendation from 15 brokerage firms, DigitalOcean Holdings Inc's (DOCN, Financial) average brokerage recommendation is currently 2.3, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for DigitalOcean Holdings Inc (DOCN, Financial) in one year is $55.43, suggesting a upside of 93.68% from the current price of $28.62. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the DigitalOcean Holdings Inc (DOCN) Summary page.
DOCN Key Business Developments
Release Date: May 06, 2025
- Revenue: $211 million, up 14% year-over-year.
- Annual Run Rate Revenue (ARR): $843 million, up 14% year-over-year.
- Net Dollar Retention Rate (NDR): Improved to 100%.
- Revenue from $100,000+ Customers: Increased 41% year-over-year, representing 23% of total revenue.
- Gross Margin: 61%, 200 basis points higher than the prior year.
- Adjusted EBITDA: $86 million, with a margin of 41%.
- Non-GAAP Diluted Net Income per Share: $0.56, a 30% increase year-over-year.
- GAAP Diluted Net Income per Share: $0.39, a 160% increase year-over-year.
- Adjusted Free Cash Flow: Effectively breakeven for Q1.
- Cash and Cash Equivalents: $360 million at the end of Q1.
- Share Repurchases: $59 million in Q1, totaling $1.6 billion since IPO.
- New Credit Facility: $800 million secured five-year credit facility, including a $500 million Term Loan A.
- Q2 2025 Revenue Guidance: $215.5 million to $217.5 million.
- Full Year 2025 Revenue Guidance: $870 million to $890 million.
- Q2 2025 Adjusted EBITDA Margin Guidance: 38% to 40%.
- Full Year 2025 Adjusted EBITDA Margin Guidance: 37% to 40%.
- Q2 2025 Non-GAAP Diluted EPS Guidance: $0.42 to $0.47.
- Full Year 2025 Non-GAAP Diluted EPS Guidance: $1.85 to $1.95.
- Full Year 2025 Adjusted Free Cash Flow Margin Guidance: 16% to 18%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DigitalOcean Holdings Inc (DOCN, Financial) reported a 14% year-over-year revenue growth in Q1 2025, reaching $211 million.
- The company's AI annual recurring revenue (ARR) grew over 160% year-over-year, indicating strong momentum in AI initiatives.
- Revenue from customers with an annual run rate of over $100,000 increased by 41% year-over-year, now representing 23% of total revenue.
- DigitalOcean Holdings Inc (DOCN) achieved a 61% gross margin and a 41% EBITDA margin in Q1, reflecting healthy profitability.
- The company released over 50 new products and features in Q1, significantly enhancing its cloud and AI platforms without increasing R&D spend as a percentage of revenue.
Negative Points
- The company's Q1 adjusted free cash flow was effectively breakeven due to front-loaded capital expenditures.
- DigitalOcean Holdings Inc (DOCN) faces challenges in maintaining free cash flow while pursuing larger deals that require significant upfront capacity investment.
- The company is exploring additional funding strategies to support growth, indicating potential financial constraints.
- There is uncertainty in the economic and geopolitical environment, which could impact customer buying behavior and growth projections.
- DigitalOcean Holdings Inc (DOCN) needs to address its outstanding 2026 convertible debt, which may affect its financial flexibility.
