2024-04-22 08:08:59 ET
Summary
- DOCN’s revenue has grown impressively (CAGR: +28%), driven by a compelling value proposition and effective go-to-market strategy, alongside industry tailwinds.
- The company has a strong competitive position in its segment, which is primed for growth and market share gains, albeit faces cyclicality which is currently weighing on growth.
- DOCN’s industry is experiencing strong growth, as there is a global transition to developer cloud capabilities and away from on-prem, with AI posing the potential for acceleration.
- DOCN’s DBRR is a concern, as it has fallen and remained below 100%. The company is struggling with existing customer value, noting churn is broadly flat.
- Whilst DOCN’s valuation is reasonable, we are very concerned by the slowing revenue and DBRR. We suggest investors remain patient until there is better visibility of progression.
Introduction and thesis
DigitalOcean's ( DOCN ) business model revolves around providing cloud computing services, including virtual servers (droplets), managed databases, Kubernetes, storage solutions, and networking features. It offers a user-friendly platform with a focus on simplicity, scalability, and affordability, targeting developers and businesses looking to deploy and manage applications and websites in the cloud.
DOCN is a solid business in our view. The company has a strong competitive position and is razor-focused on its core target base, allowing for market share growth. Management is clearly aware of weaknesses in its business model, partaking in M&A to broaden its offering....
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DigitalOcean: Good Potential With A Long-Term Story, But We Have Reservations