Cloud computing provider DigitalOcean (NYSE: DOCN) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 14.1% year on year to $210.7 million. The company expects next quarter’s revenue to be around $216.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.56 per share was 26.3% above analysts’ consensus estimates.
Is now the time to buy DigitalOcean? Find out by accessing our full research report, it’s free.
DigitalOcean (DOCN) Q1 CY2025 Highlights:
- Revenue: $210.7 million vs analyst estimates of $208.6 million (14.1% year-on-year growth, 1% beat)
- Adjusted EPS: $0.56 vs analyst estimates of $0.44 (26.3% beat)
- Adjusted EBITDA: $86.28 million vs analyst estimates of $81.48 million (41% margin, 5.9% beat)
- The company reconfirmed its revenue guidance for the full year of $880 million at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $1.90 at the midpoint
- Operating Margin: 17.9%, up from 6.2% in the same quarter last year
- Free Cash Flow was -$821,000, down from $36.71 million in the previous quarter
- Net Revenue Retention Rate: 100%, up from 99% in the previous quarter
- Annual Recurring Revenue: $843 million at quarter end, up 14.1% year on year
- Market Capitalization: $3.02 billion
“The momentum we generated in 2024 in both core cloud and AI continued into Q1, as we grew total revenue 14% year-over-year, our highest quarterly growth rate since Q3 2023, with AI ARR continuing to grow north of 160% year-over-year, and we delivered more than 50 new product features, over 5 times as many as we delivered in Q1 of last year.” said Paddy Srinivasan, CEO of DigitalOcean.
Company Overview
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, DigitalOcean grew its sales at a decent 20.4% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.
This quarter, DigitalOcean reported year-on-year revenue growth of 14.1%, and its $210.7 million of revenue exceeded Wall Street’s estimates by 1%. Company management is currently guiding for a 12.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 13.2% over the next 12 months, a deceleration versus the last three years. Still, this projection is admirable and suggests the market is forecasting success for its products and services.
Software is eating the world and there is virtually no industry left that has been untouched by it. That drives increasing demand for tools helping software developers do their jobs, whether it be monitoring critical cloud infrastructure, integrating audio and video functionality, or ensuring smooth content streaming. Click here to access a free report on our 3 favorite stocks to play this generational megatrend.
Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
DigitalOcean’s ARR punched in at $843 million in Q1, and over the last four quarters, its growth slightly outpaced the sector as it averaged 13.2% year-on-year increases. This performance aligned with its total sales growth and shows the company is securing longer-term commitments. Its growth also contributes positively to DigitalOcean’s revenue predictability, a trait long-term investors typically prefer. 
Customer Retention
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
DigitalOcean’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 98.2% in Q1. This means DigitalOcean’s revenue would’ve decreased by 1.8% over the last 12 months if it didn’t win any new customers.
Despite trending up over the last year, DigitalOcean still has a weak net retention rate, signaling that some customers aren’t satisfied with its products, leading to lost contracts and revenue streams.
Key Takeaways from DigitalOcean’s Q1 Results
We enjoyed seeing DigitalOcean beat analysts’ EBITDA expectations this quarter. We were also glad its net revenue retention grew. On the other hand, its EPS guidance for next quarter missed significantly and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $32.70 immediately following the results.
So should you invest in DigitalOcean right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
